How does Potbelly Sandwich Works handle the costs of repairs and maintenance for property and equipment?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment acquired is recorded at cost less accumulated depreciation. Property and equipment is depreciated based on the straight-line method over the estimated useful lives, generally ranging from three to five years for furniture and fixtures, computer equipment, computer software, and machinery and equipment. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease life, generally 10 to 15 years. For leases with renewal periods at our option, we determine the expected lease period based on whether the renewal of any options is reasonably assured at the inception of the lease.
Direct costs and expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized, whereas the costs of repairs and maintenance are expensed when incurred. Capitalized costs are recorded as part of the asset to which they relate, primarily to leasehold improvements, and such costs are amortized over the asset's useful life. When assets are retired or sold, the asset cost and related accumulated depreciation are removed from the consolidated balance sheet and any gain or loss is recorded in impairment, loss on disposal of property and equipment and shop closures in the consolidated statement of operations.
Source: Item 11 — FRANCHISOR'S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING (FDD pages 37–49)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, the costs of repairs and maintenance for property and equipment are expensed when incurred. However, direct costs and expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. These capitalized costs are recorded as part of the asset to which they relate, primarily to leasehold improvements, and are amortized over the asset's useful life.
For a Potbelly Sandwich Works franchisee, this means that routine repairs and maintenance costs for items like furniture, fixtures, and equipment will be treated as regular operating expenses in the period they occur. However, if a franchisee undertakes a significant refurbishment or improvement that extends the life or capacity of an asset, such as a major renovation of the shop's interior, those costs would be capitalized and depreciated over the asset's useful life. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease life, generally 10 to 15 years.
When assets are retired or sold, the asset cost and related accumulated depreciation are removed from the consolidated balance sheet. Any gain or loss from the disposal is recorded as impairment, loss on disposal of property and equipment, and shop closures in the consolidated statement of operations. This accounting treatment is fairly standard in the franchise industry, as it aligns with general accounting principles for managing and reporting asset values and expenses.