What costs does Bumble Roofing capitalize when developing internal-use software?
Bumble_Roofing Franchise · 2025 FDDAnswer from 2025 FDD Document
Additionally, the Company capitalizes certain costs incurred in connection with developing or obtaining internaluse software. Capitalized costs include direct external costs, internal payroll, and payroll-related costs for employees who are directly associated with and devote time to the project. Costs incurred during the preliminary project stage, as well as costs for maintenance and training, are expensed as incurred. Capitalization begins when the preliminary project stage is complete, management authorizes and commits to funding the project, it is probable that the project will be completed, and the software will be used for its intended function. Capitalization ceases when the project is substantially complete and ready for its intended use.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2025 FDD)
According to Bumble Roofing's 2025 Franchise Disclosure Document, the company capitalizes certain costs related to the development or acquisition of internal-use software. These capitalized costs specifically include direct external costs, internal payroll, and payroll-related costs for employees who are directly involved with and dedicate their time to the software project. This means that Bumble Roofing accounts for these expenses as assets on its balance sheet rather than as immediate expenses on its income statement.
However, not all costs are capitalized. The document states that costs incurred during the preliminary project stage, as well as costs for maintenance and training, are expensed as they are incurred. This indicates that Bumble Roofing only begins capitalizing costs once the preliminary project stage is complete. Capitalization starts when management authorizes and commits to funding the project, it is probable that the project will be completed, and the software will be used for its intended function.
Capitalization ceases when the project is substantially complete and ready for its intended use. The value associated with the internally developed software is then amortized on a straight-line basis over a period of 5 to 15 years. This accounting treatment allows Bumble Roofing to spread the cost of the software over its useful life, which can provide a more accurate representation of the company's financial performance over time. A prospective franchisee should be aware of these accounting practices, as they can impact the reported financial results of the franchisor.