When does Benjamin Franklin Plumbing capitalize software development costs?
Benjamin_Franklin_Plumbing Franchise · 2025 FDDAnswer from 2025 FDD Document
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 software projects. Any costs incurred to significantly upgrade or enhance the Company's software platform 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 ASC 350-40 and ASC 985-20 are recognized in depreciation and amortization and franchise support expenses, respectively, on the consolidated statements of operations using a straight-line method over an estimated useful life of three to five years for mobile applications and software platforms, respectively.
Source: Item 22 — CONTRACTS (FDD pages 87–88)
What This Means (2025 FDD)
According to Benjamin Franklin Plumbing's 2025 Franchise Disclosure Document, the company capitalizes software development costs once the preliminary project stage is complete and technological feasibility has been established. This means that before capitalizing these costs, Benjamin Franklin Plumbing must have finished the initial planning phase of the software project and confirmed that the software can be developed as intended, typically demonstrated through a working model.
Capitalized costs include personnel and related expenses for employees and third-party contractors directly involved in the software projects. Additionally, any costs associated with significantly upgrading or enhancing the company's software platform are also capitalized. This indicates that Benjamin Franklin Plumbing invests in improving its software and treats these investments as assets rather than immediate expenses.
However, costs related to preliminary project activities and post-implementation support activities are expensed as incurred. This accounting practice distinguishes between the costs of initial development and later-stage support, with only the former being capitalized. The amortization of these capitalized software costs is recognized in depreciation and amortization and franchise support expenses on the consolidated statements of operations, using a straight-line method over an estimated useful life of three to five years for mobile applications and software platforms, respectively. This means the cost is spread out over that time period.