What method does Chem Dry use for computing depreciation of property and equipment?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
Property and equipment are recorded at cost. The straight-line method is used for computing depreciation. Assets are depreciated over their estimated useful lives. The cost of leasehold improvements is depreciated over the lesser of the length of the related leases or the estimated useful lives of the assets. Costs of maintenance and repairs are charged to expense when incurred.
| 2023 | 2022 | 2021 | Depreciable Life - Years | |
|---|---|---|---|---|
| Machinery and equipment | $ 844 | $ 762 | $ 548 | 2-10 |
| Vehicles | 222 | 102 | 100 | 5 |
| Furniture and fixtures | 191 | 126 | 114 | 3-5 |
| Office and computer equipment | 1,442 | 1,253 | 1,048 | 3-5 |
| Leasehold improvements | 441 | 431 | 412 | 1-7 |
| Construction in progress | 1,005 | 362 | 260 | - |
| Total cost | 4,145 | 3,036 | 2,482 | |
| Accumulated depreciation | 1,925 | 1,335 | 872 | |
| Net property and equipment | $ 2,220 | $ 1,701 | $ 1,610 |
Source: Item 23 — Receipts (FDD pages 68–264)
What This Means (2024 FDD)
According to Chem Dry's 2024 Franchise Disclosure Document, the company uses the straight-line method for calculating depreciation of property and equipment. Assets are depreciated over their estimated useful lives. Leasehold improvements are depreciated over the shorter of the lease length or the asset's estimated useful life. Maintenance and repair costs are expensed as they are incurred.
For a Chem Dry franchisee, this means that the cost of equipment and property will be evenly spread out over its useful life for accounting purposes. The depreciable life for machinery and equipment is between 2 and 10 years, for vehicles it is 5 years, for furniture and fixtures it is 3 to 5 years, for office and computer equipment it is 3 to 5 years, and for leasehold improvements it is 1 to 7 years. This impacts the franchisee's net income and tax obligations during the corresponding periods.
The FDD also includes a table showing the costs and accumulated depreciation for various categories of property and equipment for the years 2021, 2022 and 2023. For example, in 2023, Chem Dry had $844 in machinery and equipment, $222 in vehicles, $191 in furniture and fixtures, and $1,442 in office and computer equipment. Accumulated depreciation in 2023 was $1,925. Understanding depreciation methods is important for managing the financial aspects of a Chem Dry franchise.