Franchising Today - Fall 2016 - 25

REMODELING

rules, the IRS allows the deduction
for the disposal of leasehold improvements previously placed in service
that are currently being remodeled.
Thorough cost reports are needed to
ensure that you have the information
to take advantage of these IRS regulations and to accelerate your tax deductions. Without an itemized cost
report and detailed tax depreciation
schedules, it becomes challenging to
identify the leaseholds that were previously placed in service in order to
accurately write them off.

Financial StatementS
Although retail and restaurant owners may qualify for these expanded tax
benefits, it also is important to keep
in mind the significant impact that
financing these remodeling projects
could have on the company's financial
statements. For example, many times
the remodels for restaurateurs and retailers are negotiated as tenant allowances or lease incentives provided and
financed by the landlord. These negotiations are likely to be concurrent
with an extension of an existing operating lease or modeled as an incentive
to a new tenant to enter a lease.
Such incentives may be provided
by the lessor (the landlord) either
by paying directly for the improvements to the property (usually up to
an agreed-upon amount) or by providing the lessee (the tenant) with an
upfront cash payment. When the lessee receives an upfront cash payment,
the tenant has greater controls and
manages the purchases for property
improvements. Many times these incentives are buried within a lengthy
lease agreement, and the proper accounting for the incentives are unintentionally ignored.
For financials statement reporting
purposes, it is important to remem-

Many restaurant and retail stores are
continuing to remodel and upgrade their
locations, so the new tax rules will help.

ber that under generally accepted
accounting principles in the United
States, specifically ASC 840, the incentives provided by the lessor to the
lessee in an operating lease, under either situation, should not be recorded
as a reduction of leasehold improvements by the lessee.

DeFerreD

anD

amortizeD

For financial purposes, these tenant
allowances, like all lease incentives
provided by the lessor, should be deferred and amortized on a straightline basis over the shorter of the remaining terms of the respective lease
or the economic useful life of the
improvement. The amortization of
the deferred tenant allowances are recorded as a reduction to rent expense.
Leasehold improvements should be
similarly amortized over the shorter
of the remaining lease terms or the
economic useful life of the improvement. When using the remaining

lease term as the useful life for the
amortization period, any available
extensions or options within the lease
would be used in the life determination if it was reasonably assured that
the lease would be renewed
As many restaurant and retail stores
are continuing to remodel and upgrade their locations, it is important
to keep in mind the favorable income
tax benefits available to the company
while properly accounting for the remodeling costs, including the related
financing, on the company's financial
statement reports.
Leah Bendig, CPA, and Maggie Wise,

CPA, are accountants in the restaurants/
franchises/retail practice at Windham
Brannon in Atlanta. Bendig is a tax senior
manager, providing tax compliance and
business advisory services for clients with
a focus on state tax incentives. Wise is an
audit senior manager who specializes in
providing audit, accounting and financial reporting
expertise. They may be reached at (404) 898-2000 or
by email at lbendig@windhambrannon.com or mwise@
windhambrannon.com.
FALL 2016

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Table of Contents for the Digital Edition of Franchising Today - Fall 2016

Contents
Franchising Today - Fall 2016 - Cover1
Franchising Today - Fall 2016 - Cover2
Franchising Today - Fall 2016 - 1
Franchising Today - Fall 2016 - Contents
Franchising Today - Fall 2016 - 3
Franchising Today - Fall 2016 - 4
Franchising Today - Fall 2016 - 5
Franchising Today - Fall 2016 - 6
Franchising Today - Fall 2016 - 7
Franchising Today - Fall 2016 - 8
Franchising Today - Fall 2016 - 9
Franchising Today - Fall 2016 - 10
Franchising Today - Fall 2016 - 11
Franchising Today - Fall 2016 - 12
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Franchising Today - Fall 2016 - 14
Franchising Today - Fall 2016 - 15
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Franchising Today - Fall 2016 - 27
Franchising Today - Fall 2016 - 28
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Franchising Today - Fall 2016 - 30
Franchising Today - Fall 2016 - 31
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Franchising Today - Fall 2016 - 33
Franchising Today - Fall 2016 - 34
Franchising Today - Fall 2016 - 35
Franchising Today - Fall 2016 - 36
Franchising Today - Fall 2016 - 37
Franchising Today - Fall 2016 - 38
Franchising Today - Fall 2016 - 39
Franchising Today - Fall 2016 - 40
Franchising Today - Fall 2016 - 41
Franchising Today - Fall 2016 - 42
Franchising Today - Fall 2016 - 43
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Franchising Today - Fall 2016 - 45
Franchising Today - Fall 2016 - 46
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Franchising Today - Fall 2016 - 48
Franchising Today - Fall 2016 - 49
Franchising Today - Fall 2016 - 50
Franchising Today - Fall 2016 - 51
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Franchising Today - Fall 2016 - 54
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Franchising Today - Fall 2016 - Cover3
Franchising Today - Fall 2016 - Cover4
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2020_vol5issue1a
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue4
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue4b
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue4a
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue3
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue3b
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue3a
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue2
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue2b
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue2a
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue1
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2019_vol4issue1a
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2018_vol3issue4
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http://www.nxtbook.com/nxtbooks/knighthouse/ft_2018_vol3issue2
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2018_vol3issue1
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2017winter
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2017fall
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2017summer
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2017spring
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2016winter
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2016fall
http://www.nxtbook.com/nxtbooks/knighthouse/ft_2016summer
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