For Crawl Space Ninja, are maintenance and repair costs expensed or capitalized in the period they are incurred?
Crawl_Space_Ninja Franchise · 2024 FDDAnswer from 2024 FDD Document
Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives of the respective asset:
Estimated Useful Life Office equipment 3 Years
Maintenance and repair costs are expensed in the period incurred. Expenditures for purchases and improvements that extend the useful lives of property and equipment are capitalized.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 51)
What This Means (2024 FDD)
According to Crawl Space Ninja's 2024 Franchise Disclosure Document, the company expenses maintenance and repair costs during the period they are incurred. This means that these costs are recognized as an expense on the income statement in the same period that they occur.
For a Crawl Space Ninja franchisee, this accounting practice means that regular upkeep and repairs to property and equipment will be fully deducted from revenue in the period the expenses are paid. This can help to reduce taxable income in the short term.
However, expenditures that improve or extend the useful life of the equipment are capitalized. Capitalizing these costs means they are added to the asset's value on the balance sheet and depreciated over the asset's remaining useful life. This accounting method spreads the cost over multiple periods.