When does 360 Painting capitalize software development costs?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company capitalizes certain costs incurred in the development of various internally used software platforms, in accordance with FASB ASC 350-40, "Internal-Use Software", which requires certain costs incurred during the application development stage be capitalized and other costs incurred during the preliminary project and post-implementation stages be expensed as they are incurred. The Company capitalizes software development costs when the preliminary project stage is completed and the technological feasibility is established. Capitalized costs include personnel and related expenses for employees and third-party contractors who are directly associated with and who devote time to internal-use software projects. Any costs incurred to significantly upgrade or enhance the Company's software platforms are also capitalized. Costs related to the preliminary project activities and post-implementation support activities are expensed as incurred. Amortization of capitalized software costs accounted for in accordance with FASB ASC 350-40 and ASC 985-20 are recognized in depreciation and amortization on the consolidated financial statements using a straight-line method over an estimated useful life of one to two years.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to 360 Painting's 2025 Franchise Disclosure Document, the company follows FASB ASC 350-40, "Internal-Use Software" for capitalizing costs related to internally used software platforms. This means that 360 Painting capitalizes certain costs incurred during the application development stage. However, costs from the preliminary project and post-implementation stages are expensed as they are incurred.
Specifically, 360 Painting capitalizes software development costs when the preliminary project stage is completed and the technological feasibility is established. These capitalized costs include personnel and related expenses for employees and third-party contractors who are directly associated with and devote time to internal-use software projects. Additionally, any costs incurred to significantly upgrade or enhance the company's software platforms are also capitalized.
For a prospective franchisee, this accounting practice is relevant because it affects 360 Painting's financial statements. Understanding when software costs are capitalized versus expensed can provide insight into the company's profitability and asset valuation. The amortization of these capitalized software costs is recognized as depreciation and amortization on the consolidated financial statements using the straight-line method over an estimated useful life of one to two years.