March 28, March 30, March 31, 2004 2003 2002 Interest income recorded on  impaired notes receivable $ 19 $ 96 $ 47 Average recorded investment in  impaired notes receivable $2,341 $1,624 $936 Building and improvements 5–25 years Machinery, equipment, furniture and fixtures 5–15 years Leasehold improvements 5–20 years 6. Inventories 7. Marketable Securities  10. Intangible Assets 8. Sales of Restaurants 9. Property and Equipment Based on the present value of the estimated cash f lows of iden- tified impaired notes receivable, the Company records interest income on its impaired notes receivable on a cash basis. The following represents the interest income recognized and average recorded investment of impaired notes receivable. included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated primarily on the straight-line basis over the estimated use- ful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows: Inventories, which are stated at the lower of cost or market value, consist primarily of restaurant food items, supplies, marketing items and equipment in connection with the Branded Product Program. Cost is determined using the first-in, first-out method. In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” the Company determines the appropriate classification of securities at the time of purchase and reassesses the appropriateness of the classification at each reporting date. At March 28, 2004 and March 30, 2003, all marketable securi- ties held by the Company have been classified as available-for-sale and, as a result, are stated at fair value. Realized gains and losses on the sale of securities, as determined on a specific identification basis, are included in the accompanying consolidated statements of opera- tions. Unrealized gains and losses on available-for-sale securities are included as a component of accumulated other comprehensive income in the accompanying consolidated balance sheet.  The Company observes the provisions of SFAS No. 66, “Accounting for Sales of Real Estate,” (“SFAS No. 66”) which estab- lishes accounting standards for recognizing profit or loss on sales of real estate. SFAS No. 66 provides for profit recognition by the full accrual method, provided (a) the profit is determinable, that is, the collectibility of the sales price is reasonably assured or the amount that will not be collectible can be estimated, and (b) the earnings process is virtually complete, that is, the seller is not obliged to per- form significant activities after the sale to earn the profit. Unless both conditions exist, recognition of all or part of the profit shall be post- poned and other methods of profit recognition shall be followed. In accordance with SFAS No. 66, the Company recognizes profit on sales of restaurants under the full accrual method, the installment method and the deposit method, depending on the specific terms of each sale. The Company continues to record depreciation expense on the property subject to the sales contracts that are accounted for under the deposit method and records any principal payments received as a deposit until such time that the transaction meets the sales criteria of SFAS No. 66.  As of March 28, 2004 and March 30, 2003, the Company had deposits on the sales of restaurants of $0 and $161, respectively, Step 2: Allocate the fair value of the reporting unit to its identi- fiable tangible and intangible assets, excluding goodwill and  liabilities. This will derive an implied fair value for the reporting unit’s goodwill. Then, compare the implied fair value of the reporting unit’s goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the report- ing unit’s goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess. The transitional impairment charge, if any, is recorded as a cumulative effect of accounting change for goodwill. Step 1: Compare the fair value for each reporting unit to its car- rying value, including goodwill. For each reporting unit where the carrying value, including goodwill, exceeds the reporting unit’s fair value, move on to step 2. If a reporting unit’s fair value exceeds the carrying value, no further work is performed and no impairment charge is necessary. On April 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), which supercedes APB Opinion No. 17, “Intangible Assets” and certain provisions of SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of ” (“SFAS No. 121”). SFAS No. 142 requires that goodwill and other intangibles be reported separately; eliminates the requirement to amortize goodwill and indefinite-lived intangible assets; addresses the amortization of intangible assets with a definite life; and addresses impairment testing and recognition of goodwill and intangible assets. SFAS No. 142 changes the method of accounting for the recover- ability of goodwill for the Company, such that it is evaluated at the brand level based upon the estimated fair value of the brand. Fair value can be determined based on discounted cash f lows, on compa- rable sales or valuations of other restaurant brands. The impairment review involves a two-step process as follows: Intangible assets consist of (i) the goodwill resulting from the acquisition of Nathan’s in 1987; (ii) trademarks and trade names, fran- chise rights and recipes in connection with Roasters and (iii) goodwill and certain identifiable intangibles resulting from the Miami Subs acquisition. These intangible assets were being amortized over periods from 10 to 40 years through March 31, 2002. 2004 Annual Report  Nathan’s Famous, Inc. & Subsidiaries page eighteen