What accounting principles does Crab N Spice refer to when discussing property and equipment depreciation?
Crab_N_Spice Franchise · 2024 FDDAnswer from 2024 FDD Document
Property and Equipment is stated at cost. Accounting principles generally accepted in the United States of America require that property and equipment be depreciated using the straight-line method. Depreciation in these financial statements reflects accelerated depreciation methods used for the tax return. The effects of these departures from accounting principles generally accepted in the United States of America on financial position, results of operations, and cash flows have not been determined. Expenditures for normal repairs and maintenance are charged to operations as incurred.
The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is present when the sum of the undiscounted estimated future cash flows expected to result from use of the assets is less than carrying value. If impairment is present, the carrying value of the impaired asset is reduced to its fair value. As of December 31, 2023, December 31, 2022, & December 31, 2021, no impairment loss has been recognized for long-lived assets.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 40–50)
What This Means (2024 FDD)
According to Crab N Spice's 2024 Franchise Disclosure Document, the company adheres to accounting principles generally accepted in the United States of America (US GAAP) for its financial statements. When accounting for property and equipment, Crab N Spice states these assets are recorded at cost. While US GAAP mandates the use of the straight-line method for depreciation, the company's financial statements reflect accelerated depreciation methods used for tax return purposes.
This deviation from US GAAP regarding depreciation means that Crab N Spice uses one method for financial reporting and another, accelerated method, for tax purposes. The FDD notes that the effects of these departures from accounting principles generally accepted in the United States of America on financial position, results of operations, and cash flows have not been determined.
For a prospective franchisee, this implies that the depreciation expenses reported in Crab N Spice's financial statements might differ from what would be expected under standard US GAAP. It is important to note that Crab N Spice reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. As of December 31, 2023, December 31, 2022, & December 31, 2021, no impairment loss has been recognized for long-lived assets.