Dunkin' Donuts 2015 Annual Report Download - page 73

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to locate a buyer, (d) significant changes to the plan of sale are not likely, and (e) the sale is probable within one year. Assets
held for sale are included within prepaid expenses and other current assets in the accompanying consolidated balance sheets.
As of December 26, 2015 and December 27, 2014, prepaid expenses and other current assets in the consolidated balance sheets
included $8.8 million and $1.1 million, respectively, of assets held for sale, which primarily consisted of property and
equipment, net and goodwill.
(h) Property and equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the respective assets. Leasehold improvements are depreciated over the shorter of the
estimated useful life or the remaining lease term of the related asset. Estimated useful lives are as follows:
Years
Buildings 20 – 35
Leasehold improvements 5 – 20
Store, production, and other equipment 3 – 10
Software 3 – 7
Routine maintenance and repair costs are charged to expense as incurred. Major improvements, additions, or replacements that
extend the life, increase capacity, or improve the safety or the efficiency of property are capitalized at cost and depreciated.
Major improvements to leased property are capitalized as leasehold improvements and depreciated. Interest costs incurred
during the acquisition period of capital assets are capitalized as part of the cost of the asset and depreciated.
(i) Leases
When determining lease terms, we begin with the point at which the Company obtains control and possession of the leased
properties. We include option periods for which failure to renew the lease imposes a penalty on the Company in such an
amount that the renewal appears, at the inception of the lease, to be reasonably assured, which generally includes option
periods through the end of the related franchise agreement term. We also include any rent holidays in the determination of the
lease term.
We record rent expense and rent income for leases and subleases, respectively, that contain scheduled rent increases on a
straight-line basis over the lease term as defined above. In certain cases, contingent rentals are based on sales levels of our
franchisees, in excess of stipulated amounts. Contingent rentals are included in rent income and rent expense as they are earned
or accrued, respectively.
We occasionally provide to our sublessees, or receive from our landlords, tenant improvement dollars. Tenant improvement
dollars paid to our sublessees are recorded as a deferred rent asset. For fixed asset and/or leasehold purchases for which we
receive tenant improvement dollars from our landlords, we record the property and equipment and/or leasehold improvements
gross and establish a deferred rent obligation. The deferred lease assets and obligations are amortized on a straight-line basis
over the determined sublease and lease terms, respectively.
Management regularly reviews sublease arrangements, where we are the lessor, for losses on sublease arrangements. We
recognize a loss, discounted using credit-adjusted risk-free rates, when costs expected to be incurred under an operating prime
lease exceed the anticipated future revenue stream of the operating sublease. Furthermore, for properties where we do not
currently have an operational franchise or other third-party sublessee and are under long-term lease agreements, the present
value of any remaining liability under the lease, discounted using credit-adjusted risk-free rates and net of estimated sublease
recovery, is recognized as a liability and recorded as an operating expense at the time we cease use of the property. The value of
any equipment and leasehold improvements related to a closed store is assessed for potential impairment (see note 2(j)).
(j) Impairment of long-lived assets
Long-lived assets that are used in operations are tested for recoverability whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable through undiscounted future cash flows. Recognition and measurement of a
potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash
flows are largely independent of the cash flows of other assets and liabilities. An impairment loss is the amount by which the
carrying amount of a long-lived asset or asset group exceeds its estimated fair value. Fair value is generally estimated by