What is the method used by Capriottis Sandwich Shop to determine the recoverability of assets?
Capriottis_Sandwich_Shop Franchise · 2025 FDDAnswer from 2025 FDD Document
are removed from the accounts, and any gain or loss on retirements is reflected in the consolidated statements of operations in the year of disposition.
After the asset has been placed into service, depreciation is based on the estimated useful life of the asset using the straight-line method. Computers and equipment, as well as furniture and fixtures, are depreciated over their useful lives from five to ten years. Leasehold improvements are depreciated over the lesser of the life of the lease or life of the improvements. Lease terms begin on the date the Company takes possession under the lease and include option periods where failure to exercise such options would result in an economic penalty.
In accordance with accounting standards, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by
Notes to Consolidated Financial Statements
the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds its fair value.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Capriottis Sandwich Shop's 2025 Franchise Disclosure Document, the company reviews long-lived assets for impairment when events or changes in circumstances suggest that the asset's carrying amount may not be recoverable. The recoverability of these assets is assessed by comparing the asset's carrying amount to the estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of the asset exceeds its estimated future cash flows, Capriottis Sandwich Shop will recognize an impairment charge. This charge is equal to the difference between the asset's carrying amount and its fair value. Essentially, if the asset is not expected to generate enough cash flow to justify its book value, the company writes down the asset to its fair value, recognizing a loss on its financial statements.
For prospective franchisees, this accounting policy is important because it affects the reported profitability and asset values of Capriottis Sandwich Shop. While the company recorded no impairment charges for the years ended December 29, 2024 and December 31, 2023, the possibility of future impairment charges could impact the financial health of the company. Understanding how Capriottis Sandwich Shop assesses asset recoverability can provide insight into the company's financial management practices and potential risks.