Over what period are leasehold improvements depreciated by Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
ts rates, and market multiples, among other items.
Transaction Related Expenses
Transaction related expenses consist primarily of advisory, legal, accounting, valuation, and other professional and consulting fees in connection with the Out-of-Court Restructuring and are expensed as incurred.
Property and Equipment, Net
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.
Amortization of assets recorded as capital leases under ASC 840, Leases are included within depreciation expense for the period ended January 3, 2022. Expenditures for betterments are capitalized. Maintenance and repairs are expensed as incurred.
Goodwill
Goodwill represents the excess of the consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed in a business combination. Goodwill is primarily attributable to the deferred tax liability created by the business combination. The Company elected to amortize the goodwill over a 10-year period on a straight-line basis. Impairment testing is performed at the enterprise level upon the occurrence of a triggering event indication that the fair value of the Company might be less than its carrying amount. When a triggering event occurs, the Company has the option to perform a qualitative assessment to determine whether a quantitative test is needed. If that assessment demonstrates that it is more likely than not that an impairment does not exist, no further testing is required.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, leasehold improvements are depreciated using the straight-line method over the lesser of their estimated useful lives, generally 10 years, or the remaining lease term. This means that Checkersrallys depreciates these improvements consistently over their lifespan or the duration of the lease, whichever is shorter.
For a prospective Checkersrallys franchisee, this depreciation method affects how the cost of leasehold improvements is accounted for over time. Leasehold improvements are capitalized, meaning their cost is spread out over the asset's useful life rather than expensed immediately. This can impact the franchisee's financial statements, particularly the profit and loss statement, by reducing the annual depreciation expense if the lease term is longer than 10 years. However, if the lease term is shorter than 10 years, the depreciation expense will be higher annually, as the cost is spread over a shorter period.
The FDD also mentions that the average amortization period for leasehold interests as of January 1, 2024 (Successor) was 11.1 years. Additionally, the company recognized amortization expense, net of revenue, of $0.2 million for the period ended January 1, 2024. These figures provide context on how Checkersrallys manages and accounts for leasehold interests and improvements, offering franchisees insight into the company's financial practices related to leased properties.
It is important for franchisees to understand these accounting practices, as they directly influence the financial performance and tax obligations of their franchise. Franchisees should consult with financial professionals to fully grasp the implications of leasehold improvement depreciation and amortization on their specific business circumstances.