What method of depreciation does Carbones Pizzeria use for income tax 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.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company uses different depreciation methods for financial reporting and income tax purposes. For financial reporting, Carbones Pizzeria follows the straight-line method of depreciation. However, for income tax purposes, the company uses accelerated methods.
This means that for its official financial statements, Carbones Pizzeria spreads the cost of an asset evenly over its useful life. But when it comes to filing taxes, the company uses methods that allow for larger depreciation deductions in the early years of an asset's life. This can reduce the company's taxable income in the short term.
For a prospective Carbones Pizzeria franchisee, this difference in depreciation methods is relevant because it affects the company's reported profits and tax liabilities. While the straight-line method provides a consistent view of depreciation expense for financial reporting, the use of accelerated methods for tax purposes can result in tax savings for the company. Franchisees may want to understand how these accounting practices impact the overall financial health and tax obligations of Carbones Pizzeria.