El Pollo Loco 2015 Annual Report Download - page 75

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Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounts and Other Receivables, Net
Accounts and other receivables consist primarily of royalties, advertising and sublease rent and related amounts receivable from franchisees
which are due on a monthly basis that may differ from the Company’s month-end dates as well as credit/debit card receivables. The need for an
allowance for doubtful accounts is reviewed on a specific identification basis based upon past due balances and the financial strength of the
obligor. Bad debt expense was immaterial for the years ended December 31, 2014, December 25, 2013, and December 26, 2012.
Inventories
Inventories consist principally of food, beverages and paper supplies and are valued at the lower of average cost or market.
Property and Equipment Owned, Net
Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold
improvements and property held under capital leases are amortized over the shorter of their estimated useful lives or the remaining lease terms.
For leases with renewal periods at the Company’s option, the Company generally uses the original lease term, excluding the option periods, to
determine estimated useful lives; if failure to exercise a renewal option imposes an economic penalty on the Company, such that management
determines at the inception of the lease that renewal is reasonably assured, the Company may include the renewal option period in the
determination of appropriate estimated useful lives.
The estimated useful service lives are as follows:
The Company capitalizes certain costs in conjunction with site selection that relate to specific sites for planned future restaurants. The Company
also capitalizes certain costs, including interest, in conjunction with constructing new restaurants. These costs are included in property and
amortized over the shorter of the life of the related buildings and leasehold improvements or the lease term. Costs related to abandoned sites and
other site selection costs that cannot be identified with specific restaurants are charged to general and administrative expenses in the
accompanying consolidated statements of operations. The Company did not capitalize any internal costs or interest costs related to site selection
and construction activities during the years ended December 31, 2014, December 25, 2013, or December 26, 2012.
Goodwill and Indefinite-Lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified
assets acquired in business combinations accounted for under the purchase method. Goodwill resulted from the Acquisition and from the
acquisition of certain franchise locations.
Upon the sale of a restaurant, we decrement goodwill. The amount of goodwill that we include in the cost basis of the asset sold is determined
based on the relative fair value of the portion of the reporting unit disposed compared to the fair value of the reporting unit retained.
71
Buildings
20 years
Land improvements
—
30 years
Building improvements
—
10 years
Restaurant equipment
—
10 years
Other equipment
—
10 years
Leasehold improvements
Shorter of useful life or lease term