Under what conditions does Canopy Lawn Care begin capitalizing costs for internal-use software?
Canopy_Lawn_Care 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.
The value associated with the franchise agreements, internally developed software, and trademarks are being amortized on a straight-line basis over 5-15 years.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 55)
What This Means (2025 FDD)
According to Canopy Lawn Care's 2025 Franchise Disclosure Document, the company capitalizes certain costs related to developing or obtaining internal-use software. These capitalized costs encompass direct external costs, internal payroll, and payroll-related costs for employees directly involved in the project. However, costs incurred during the preliminary project stage, as well as those for maintenance and training, are expensed as they occur.
Capitalization for Canopy Lawn Care begins when several conditions are met. First, the preliminary project stage must be complete. Second, management must authorize and commit to funding the project. Third, it must be probable that the project will be completed. Finally, the software must be intended for its designed function.
Capitalization ceases when the project is substantially complete and ready for its intended use. This accounting practice affects Canopy Lawn Care's financial statements by recognizing the software's value as an asset rather than an immediate expense, which can impact profitability metrics in the short term. The value associated with internally developed software is amortized on a straight-line basis over 5 years.