How does Stretch Zone record its furniture inventory?
Stretch_Zone Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's furniture inventory is recorded at cost on first in first out basis. Costs of furniture inventory includes all costs incurred, including inbound freight. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-sellable inventory and records the necessary provision to reduce such inventory to net realizable value. Any provision is recorded in operating expenses. No provision expense was recorded for the years ended December 31, 2024 and 2023.
Source: Item 3 — Franchisee/Debtor's Warranties. (FDD pages 263–364)
What This Means (2025 FDD)
According to Stretch Zone's 2025 Franchise Disclosure Document, the company records its furniture inventory at cost, using the first-in, first-out (FIFO) method. The costs included in the inventory value encompass all expenses incurred, including inbound freight charges. This means that the initial costs of the furniture are the first to be recognized as an expense when the items are sold or used.
Stretch Zone conducts regular assessments to identify any obsolete, slow-moving, or non-sellable inventory. If such inventory is found, the company records a provision to reduce the inventory value to its net realizable value, which is the estimated selling price less any costs of completion and disposal. This provision is then recorded as an operating expense on the income statement. For the years ending December 31, 2024 and 2023, no provision expense was recorded, indicating that Stretch Zone did not have any significant obsolete or slow-moving furniture inventory during those periods.
For prospective franchisees, this accounting policy means that the initial cost of furniture, including freight, will be capitalized as inventory. The franchisee will only recognize the expense as the furniture is used or sold. Additionally, franchisees should be aware that Stretch Zone's accounting practices may impact the valuation of their assets and reported expenses, particularly if they hold a significant amount of inventory that becomes obsolete or slow-moving. Understanding these policies can help franchisees better manage their inventory and financial performance.