How does Southern Steer compute depreciation for financial reporting purposes?
Southern_Steer Franchise · 2025 FDDAnswer from 2025 FDD Document
early revenue beyond the latter threshold.
Property and Equipment
It is the Company's policy that purchases of real property and tangible personal property costing more than $1,500 are capitalized and depreciated. Such assets are recognized at historical cost as the date of acquisition. Depreciation for financial reporting purposes is computed using the straight-line method over the estimated useful lives of the assets.
For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system (MACRS). Expenditures for major renewals and betterments that extend the useful lives of equipment and leasehold improvements are capitalized and depreciated. Expe
Source: Item 5 — and 7 of the FDD, Section 3.1 of the Franchise Agreement and Section 4.1 of the Multi-Unit Development Agreement are hereby amended to state that payment of the initial franchise fee and development fee will be deferred until We have satisfied Our pre-opening obligations, and You have commenced business operations. (FDD pages 168–290)
What This Means (2025 FDD)
According to the 2025 FDD, Southern Steer uses the straight-line method to calculate depreciation for financial reporting. This method evenly distributes the cost of an asset over its estimated useful life. This means that each year, Southern Steer will deduct the same amount of depreciation expense from the asset's value until it is fully depreciated. This approach provides a consistent and predictable expense recognition for financial reporting purposes.
For tangible personal property and real property purchases exceeding $1,500, Southern Steer capitalizes these assets and depreciates them. Capitalizing means recording the purchase as an asset on the balance sheet rather than expensing it immediately. The assets are recorded at their historical cost on the date of acquisition.
It is important to note that while Southern Steer uses the straight-line method for financial reporting, it uses the modified accelerated cost recovery system (MACRS) for federal income tax purposes. MACRS typically allows for larger depreciation deductions in the early years of an asset's life, which can reduce taxable income. Expenditures for major renewals and betterments that extend the useful lives of equipment and leasehold improvements are capitalized and depreciated, while expenditures for maintenance and repairs are expensed as incurred.