What method of depreciation does Carbones Pizzeria use for financial reporting purposes?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leasehold improvements are primarily amortized over the shorter of the service lives of the improvements or the lease term. The straight-line method of depreciation is followed for financial reporting purposes, but accelerated methods are used for income tax purposes. The estimated service lives used for consolidated financial reporting purposes are as follows:
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company uses the straight-line method of depreciation for financial reporting purposes. However, for income tax purposes, accelerated methods are used. This means that for the company's financial statements, the cost of depreciable assets is spread evenly over their estimated service lives.
This difference in depreciation methods can impact a franchisee's understanding of the company's financial performance. The straight-line method provides a consistent and predictable expense each period, which can make it easier to analyze trends and compare performance across different periods. However, it may not accurately reflect the actual decline in value of certain assets, especially in the early years of their use.
For income tax purposes, Carbones Pizzeria uses accelerated methods, which allow for larger depreciation deductions in the early years of an asset's life and smaller deductions later on. This can result in lower taxable income in the short term, which can be beneficial for managing tax liabilities. The estimated service lives used for consolidated financial reporting purposes are also disclosed, providing further transparency into the company's accounting practices.