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  • Aug 31st, 2019 5:24 am
[OP]
Deal Addict
Nov 2, 2003
1262 posts
79 upvotes
oshawa

depreciation question

We got a franchaise business and now have a accounting question.
we started the franchaise in 2017 and filed returns in 2018 for first year.
Capital investment: 140k
Income: 5k
Expenses 15k

We filed 10k loss in 2018 using a accountant.
WE filed a case against the franchaisor and have a settlement for 60 cents to the dollar.
when i am speaking to my accountant, he is not willing to do the depreciation on the capital costs.

How do i account for the depreciation and the writeoff of the 40 cents to the dollar?
if you dont have an answer, dont repond to my thread.
I need answers, and thats why i use redflagdeals forums.
2 replies
Newbie
User avatar
Nov 18, 2012
24 posts
13 upvotes
Vancouver
I am assuming you mean you are the Franchisee and that you filed a lawsuit against the Parent Franchiser...

Depends on how this was classified. For example, if the lawsuit was filed against the master Franchiser for services not performed or goods not delivered this would affect impairment calculations. The accountant should be performing an impairment analysis and doing a write down (aka an impairment) of the Goodwill that was purchased as part of your franchise agreement.

Subsequently the settlement proceeds should offset that write-off. The amount that is left may not necessarily equal that 40 cents per dollar but would equate to your true loss of value. In either case you don't want to depreciation of the capital costs, you want to impair it and recognize it all at once.

Moreover, as a regular entry the goodwill should be depreciated at full value (CCA Class 14.1 - 5%). Once the impairment adjustment occurs, the goodwill value that gets depreciated is (or should be) significantly decreased. Not entirely sure what the accountant's rationale is, but probably warrants that you go back to your accountant and get a more thorough explanation (or get a new accountant).


junkone wrote: We got a franchaise business and now have a accounting question.
we started the franchaise in 2017 and filed returns in 2018 for first year.
Capital investment: 140k
Income: 5k
Expenses 15k

We filed 10k loss in 2018 using a accountant.
WE filed a case against the franchaisor and have a settlement for 60 cents to the dollar.
when i am speaking to my accountant, he is not willing to do the depreciation on the capital costs.

How do i account for the depreciation and the writeoff of the 40 cents to the dollar?
Newbie
Jun 20, 2018
69 posts
32 upvotes
Some good points 604paladin, one thing I'd like to point out is that the impairment calculation and analysis should be done by the client and not the accountant. The analysis, if done by the accountant would be a separate engagement as it would not likely be covered under an NTR engagement letter.

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