I went to McDonald’s today. Not for the food but for the fun. However, I did eat there.
McDonald’s sells a significant amount of food to parents and children. Primarily because the family wants use the play area. So, how does a McDonald’s franchise account for this highly-prized asset category (PlayPlace).
A McDonald’s franchise owner incurs a few significant costs to supply the play area.
1) The play equipment
2) The added building space.
Other costs include maintenance and insurance related to the play area.
The play equipment would be capitalized and depreciated. The added building space would fall into the same category.
However, if McDonald’s considered the fair value of the play area, the resulting financial reports would be significantly different. The value of the play area could be calculated using a discounted cash flow model. The incremental future cash flows would consist of the profit from sales made to families who are at McDonald’s primarily to use the play area.
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