How does Monicals Pizza depreciate new equipment for accounting purposes?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
cquired via business combination, which are stated at fair value (see Note 2). Major expenditures which substantially increase useful lives are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses, if any, are included in income.
Property and equipment are depreciated over estimated useful lives using the straight-line method as follows:
New equipment 5 Years Used equipment 4 Years Electronic equipment 3 Years Buildings and improvements 15 Years
Leasehold improvements Lesser of the lease term or 10 years.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company reviews long-lived assets, including property and equipment and lease right of use assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. There were no impairments recognized during the years ended December 31, 2024 and 2023.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to Monicals Pizza's 2025 Franchise Disclosure Document, the company depreciates property and equipment over their estimated useful lives using the straight-line method. New equipment is depreciated over a period of five years. Used equipment is depreciated over four years, while electronic equipment is depreciated over three years. Buildings and improvements are depreciated over 15 years. Leasehold improvements are depreciated over the lesser of the lease term or 10 years.
This depreciation method means that the cost of the equipment is evenly spread out over its useful life. For a franchisee, this means that the expense of new equipment will be recognized gradually over five years, which can impact the reported profitability of the business during those years. The straight-line method is a common and straightforward approach to depreciation, making it easier to forecast and understand the financial implications of equipment investments.
Monicals Pizza also states that major expenditures that substantially increase the useful lives of assets are capitalized, meaning they are added to the asset's cost and depreciated over the extended life. Routine maintenance, repairs, and minor renewals are expensed as incurred, meaning they are deducted from income in the period they occur. When assets are retired or disposed of, their costs and related accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income.
Monicals Pizza reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the estimated future cash flows from the use of the asset are less than the carrying amount, an impairment loss is recognized. This ensures that the value of assets on the balance sheet reflects their true economic value.