How are depreciable assets valued when calculating the Book Value of a Browns Chicken franchise?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
are not reasonably necessary (in function or quality) to the Store's operation or that Brown has not approved as meeting its standards for BROWN's Stores, and the purchase price will reflect these exclusions.Brown shall have the unrestricted right to assign this option to
purchase and assignment of leases separate and apart from the remainder of this Agreement.
- (2) The purchase price for the Store (except for the signage, the purchase price of which is $100) shall be either, at Brown's option: (a) the Book Value (as defined below) of the Purchased Assets, or (b) the fair market value of the Purchased Assets, as determined by a neutral appraiser. Both Brown and the Franchisee shall select an appraiser, whose sole function would be to select a third, neutral appraiser, who would determine the fair market value of the Purchased Assets. The fees and costs of the neutral appraiser shall be shared equally by Brown and Franchisee. "Book Value" shall mean the net book value of the Purchased Assets, as disclosed by the balance sheet of the last monthly statement of the Store required to have been submitted to Brown pursuant to Paragraph 12.B. hereof prior to such termination or expiration, provided, however, that: (1) each depreciable asset shall be valued as if it had been depreciated on a "straight-line" basis from the date of its acquisition over its Useful Life (defined below) without provision for salvage value; and (2) Brown may exclude from the Purchased Assets any inventory, equipment, fixtures, furniture, signs, cash registers, modems, fax machines, computers, or leasehold improvements of the Store that have not been acquired in compliance with this Agreement. No value shall be attributed to goodwill of the Store, the assignment of lease (or sublease) for the premises of the Store, or the assignment of any lease for any other tangible assets used in connection with the Store, and Brown shall not be required to pay any separate consideration for any such assignment or sublease.
- (3) For purposes of this Paragraph 21.G., "Useful Life" shall be as follows:
Furniture, fixtures, signs: 7 years
Equipment (including electronic equipment): 5 years
Leasehold improvements: 10 years
- (4) If Franchisee has not furnished Brown a balance sheet of the last monthly statement of the Store, Brown may establish Book Value of the Purchased Assets based on Franchisee's initial cost, depreciated on a "straight-line" basis as described above. If evidence of Franchisee's initial cost for any Purchased Asset is not proven by actual receipts, Brown will assign an initial cost based on its best information for like items being sold at the time Franchisee opened his Store.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, when Browns Chicken exercises its option to purchase a store, the depreciable assets are valued using a specific method to determine the book value. The "Book Value" is defined as the net book value of the Purchased Assets, based on the store's last monthly balance sheet submitted to Browns Chicken.
However, the FDD stipulates that each depreciable asset must be valued as if it had been depreciated on a "straight-line" basis from the date of its acquisition over its Useful Life, without considering any salvage value. This means that the depreciation is calculated evenly over the asset's useful life, regardless of its actual market value at the time of purchase. The franchisor defines the "Useful Life" for furniture, fixtures, and signs as 7 years, for equipment (including electronic equipment) as 5 years, and for leasehold improvements as 10 years.
If the franchisee has not provided a balance sheet, Browns Chicken can estimate the Book Value based on the franchisee's initial cost, depreciated using the same straight-line method. If there is no proof of the initial cost, Browns Chicken will estimate the initial cost based on their best information for similar items at the time the franchise opened. This valuation method does not attribute any value to the goodwill of the store, the assignment of the lease, or any leases for other tangible assets, and Browns Chicken is not required to pay separate consideration for these items.