For Surestay Hotel By Best Western, when are prepaid expenses and other current assets expensed?

According to Surestay Hotel By Best Western's 2025 Franchise Disclosure Document, certain costs to obtain contracts with members, soft brand licensees, SureStay franchisees, and WorldHotels licensees are initially recorded as prepaid expenses and other current assets. These costs are then amortized on a straight-line basis over the hotelier's expected life as a branded hotel or over the initial contract term. The related amortization is recorded in compensation, taxes, and benefits within the company's Consolidated Statements of Revenues and Expenses.

For a prospective Surestay Hotel By Best Western franchisee, this means that the costs associated with acquiring the franchise contract are not immediately expensed. Instead, they are capitalized as assets and gradually expensed over the duration of the franchise agreement or the expected life of the hotel as a branded property. This accounting treatment aligns the expense recognition with the period during which the franchisee is expected to benefit from the franchise.

For example, the capitalized costs to obtain contracts with customers were $13.2 million as of November 30, 2024, and $12.9 million as of November 30, 2023. The amortization of these costs is then reflected in the company's expenses over time. This approach is common in franchise accounting, as it provides a more accurate representation of the financial performance of the franchise system by matching the costs with the revenues they generate over the long term.