What happens to the related cost and accumulated depreciation when Itan sells or retires items of property and equipment?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment - Property and equipment are carried at cost. Depreciation is computed using the straight-line method of depreciation over the assets estimated useful lives of five years. Maintenance and repairs are charged to the expense as incurred; major renewals and betterments are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, when items of property and equipment are sold or retired, Itan removes the related cost and accumulated depreciation from its accounts. Any resulting gain or loss from this transaction is then included in Itan's income. This accounting practice ensures that the company's financial statements accurately reflect the disposal of assets and the impact on its profitability.
For a prospective Itan franchisee, this accounting treatment is important to understand because it affects the overall financial picture of the franchise. When a franchisee disposes of assets, such as tanning beds or salon furniture, the proper accounting for these transactions will impact the reported income. Franchisees should maintain accurate records of the original cost, accumulated depreciation, and any proceeds from the sale of assets to ensure correct financial reporting.
This accounting practice is standard and ensures transparency in financial reporting. Franchisees should consult with their own financial advisors to fully understand the implications of asset disposal on their individual franchise's financial statements and tax obligations. Understanding these accounting principles will help franchisees manage their business effectively and maintain accurate financial records.