What accounting principles must Canine Dimensions follow when preparing its financial statements?
Canine_Dimensions Franchise · 2025 FDDAnswer from 2025 FDD Document
Policies:**
Method of Accounting
The accompanying financial statements have been prepared on the accrual basis of accounting, recognizing income when earned and expenses when incurred.
Management's Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Franchise Costs
Franchise Costs, which are intangible assets, that have an indefinite useful life should not be amortized and are subject to an impairment test on an annual basis by comparing the fair value to the carrying amount of the intangible asset. If the assessment indicates that the carrying amount exceeds the fair value of the intangible asset, the excess should be recognized as impairment loss. If the fair value exceeds the carrying amount, impairment is deemed not to exist. At December 31, 2024 and 2023 the fair value of the Franchise Costs exceeded the carrying amount.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2025 FDD)
According to Canine Dimensions's 2025 Franchise Disclosure Document, the company prepares its financial statements in conformity with accounting principles generally accepted in the United States of America. Specifically, the financial statements are prepared using the accrual basis of accounting, where income is recognized when earned and expenses are recognized when incurred.
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. The company capitalizes assets with a useful life beyond one year, such as an automobile, which is recorded at cost and depreciated using the straight-line method over five years.
For tax purposes, Canine Dimensions is treated as a disregarded entity, meaning the tax effects of the company's income or loss are passed through to its sole member. Additionally, the financial statements include only those assets, liabilities, and results of operations related to the business of Canine Dimensions Franchising, LLC, and do not include any items attributable to the member's individual activities.
Franchise costs, classified as intangible assets with indefinite useful lives, are not amortized but are subject to an annual impairment test. This test compares the fair value to the carrying amount of the intangible asset. If the carrying amount exceeds the fair value, an impairment loss is recognized. For the financial years 2024 and 2023, the fair value of the franchise costs exceeded the carrying amount.