How are deferred franchise development costs amortized by Bevaris Alliance?
Bevaris_Alliance Franchise · 2024 FDDAnswer from 2024 FDD Document
as well as training. The Company was formed on March 15, 2021. Membership interest is summarized as follows:
Member% InterestBenice Shamoon100%
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America.
Cash consists of cash and money market funds which are considered to be cash or cash equivalents.
Deferred Franchise Development Costs. Costs incurred in connection with the development of the franchise concept, offering documents and operations manuals have been deferred. The costs are being amortized using the straight-line method over the 5-year estimated useful life of the asset. Such amortization will begin when franchise sales commence.
Initial franchise fees and royalties.
Source: Item 23 — RECEIPT (FDD pages 22–88)
What This Means (2024 FDD)
According to Bevaris Alliance's 2024 Franchise Disclosure Document, deferred franchise development costs, which include expenses for developing the franchise concept, offering documents, and operations manuals, are amortized using the straight-line method over a 5-year estimated useful life. This amortization process will commence once Bevaris Alliance begins selling franchises.
For a prospective Bevaris Alliance franchisee, this means that the costs the franchisor incurs to set up the franchise system are gradually expensed over five years, starting when franchise sales begin. Amortization expense for 2023 and 2022 were $14,656 and $6,107, respectively. As of December 31, 2023, the deferred franchise development costs were $73,279, with accumulated amortization of $20,762, resulting in a net value of $52,517. In 2022, the deferred franchise development costs were also $73,279, with accumulated amortization of $6,107, resulting in a net value of $67,172.
The straight-line method evenly distributes the expense over the asset's useful life, providing a consistent and predictable expense each year. The 5-year amortization period is a standard practice, reflecting the typical lifespan during which these development costs are expected to benefit the franchise system. The FDD also states that during 2023, no franchise agreements were executed, while five franchise agreements were executed during 2022, which serviced 26 schools.
Understanding how these costs are handled can give a franchisee insight into the financial management and stability of Bevaris Alliance. It's important to note that the amortization begins with franchise sales, so any delays in starting franchise operations could affect the timing of these expenses.