What is Southern Steer's policy regarding the capitalization and depreciation of real property and tangible personal property costing more than $1,500?
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 Southern Steer's 2025 Franchise Disclosure Document, the company's policy is to capitalize and depreciate purchases of real property and tangible personal property that cost more than $1,500. These assets are recorded at their historical cost on the date they were acquired. For financial reporting, Southern Steer uses the straight-line method to depreciate these assets over their estimated useful lives.
For federal income tax purposes, Southern Steer uses the modified accelerated cost recovery system (MACRS) to calculate depreciation. The company also capitalizes and depreciates expenditures for major renewals and betterments that extend the useful lives of equipment and leasehold improvements. However, expenditures for regular maintenance and repairs are charged to expenses as they are incurred.
For a prospective franchisee, this means that any significant purchases of real property or tangible personal property exceeding $1,500 for their Southern Steer franchise will be treated as capital assets. These assets will be depreciated over time, affecting the franchisee's financial statements and tax obligations. Understanding the difference between how depreciation is calculated for financial reporting versus tax purposes is important for financial planning and tax management.