What is the estimated future five-year amortization expense for development costs for Burros Fries?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
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NOTE 2 – INTANGIBLE ASSETS
The Company incurred franchisor development costs during 2020. This consists of services required by the Company to create a comprehensive franchise program and includes legal fees, development of franchise documents, marketing and filing services. Completed costs are $21,875. Accumulated amortization at December 31, 2021 is $2,430.
The amortization for development costs is 15 years. Amortization expense for the year ended December 31, 2021was $1,458. Estimated future five-year amortization expense for deve
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2024 FDD)
According to the 2024 Burros Fries Franchise Disclosure Document, the company incurred franchisor development costs during 2020, which included legal fees, franchise document development, marketing, and filing services, totaling $21,875. As of December 31, 2021, the accumulated amortization was $2,430. The amortization period for these development costs is 15 years.
The annual amortization expense for the year ended December 31, 2021, was $1,458. Based on this, the estimated future five-year amortization expense for development costs is $1,458 per year, totaling $7,290 over the five-year period. This means that Burros Fries is spreading the cost of its initial franchise development expenses over 15 years, recognizing a portion of the expense each year.
For a prospective franchisee, understanding these amortization expenses is crucial as it reflects the financial management and long-term planning of Burros Fries. While this expense is borne by the franchisor, it provides insight into how the company handles its financial obligations and investments. Knowing the amortization schedule and the types of costs included can help a franchisee assess the financial stability and transparency of the franchise system.
It's important to note that these figures are based on the financial year ending December 31, 2021. Future FDDs may present different figures based on updated financial conditions and accounting practices. A potential franchisee should review the most recent FDD and consult with a financial advisor to fully understand the financial implications.