Over what period are Carbones Pizzeria's leasehold improvements primarily amortized?
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, leasehold improvements are primarily amortized over the shorter of the service lives of the improvements or the lease term. This accounting practice means that Carbones Pizzeria spreads the cost of these improvements over the period that they provide benefit, but they cannot depreciate them for longer than the lease lasts.
For a Carbones Pizzeria franchisee, this means that if they make significant improvements to their leased restaurant space, they can deduct a portion of the cost each year as an expense. However, the annual deduction will be based on whichever is shorter: the expected lifespan of the improvement (e.g., new flooring might last 10 years) or the remaining term of the lease. If the lease is shorter than the improvement's lifespan, the franchisee will not be able to fully depreciate the cost of the improvements.
This amortization approach is a standard accounting practice. Franchisees should carefully consider the length of their lease terms when planning leasehold improvements. If a lease is relatively short, it might not make financial sense to invest heavily in long-lasting improvements, as the cost recovery through amortization will be limited by the lease term.