How does Checkersrallys account for depreciation of leasehold improvements?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment were recorded at fair value in connection with the Merger for the Predecessor periods and in connection with the Out-of-Court Restructuring for the Successor period and are otherwise recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of their estimated useful lives (generally 10 years) or the remaining lease term.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company calculates depreciation using the straight-line method over the estimated useful lives of the assets. For leasehold improvements, Checkersrallys depreciates them over the shorter of their estimated useful lives, which is generally 10 years, or the remaining term of the lease.
This means that if a franchisee makes improvements to a leased property, Checkersrallys will spread the cost of these improvements evenly over either 10 years or the length of the lease, whichever is shorter. For example, if a lease is for 5 years, the leasehold improvements will be depreciated over 5 years, even if the typical useful life of such improvements is longer. This approach ensures that the entire cost is recognized during the period the franchisee has control over the asset.
For a prospective Checkersrallys franchisee, this depreciation method has implications for their financial planning and tax obligations. The depreciation expense can be used to offset taxable income, but it's important to understand the specific terms of the lease and the estimated useful lives of the improvements to accurately project these expenses. Franchisees should consult with a financial advisor to fully understand the impact of leasehold improvement depreciation on their business.