How does Management Recruiters amortize capitalized development costs for internal use software?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
Intangible assets internally developed are measured at cost. We capitalize costs to develop or purchase computer software for internal use which are incurred during the application development stage. These costs include fees paid to third parties for development services and payroll costs for employees' time spent developing the software. We expense costs incurred during the preliminary project stage and the post-implementation stage. Capitalized development costs are amortized on a straightline basis over the estimated useful life of the software. The capitalization and ongoing assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility, and estimated economic life.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, the company capitalizes costs related to developing or purchasing computer software for internal use during the application development stage. These costs encompass fees paid to third parties for development services and payroll costs for employees involved in software development. Costs incurred during the preliminary project stage and the post-implementation stage are expensed as they occur.
Management Recruiters amortizes these capitalized development costs on a straight-line basis over the estimated useful life of the software. This means the cost is evenly spread out over the period the software is expected to be used. Determining the capitalization and assessing the recoverability of these costs requires considerable judgment from the management team.
This judgment involves evaluating external factors such as technological and economic feasibility, as well as estimating the software's economic life. For a prospective franchisee, this indicates that the value of internal use software is carefully managed and accounted for, which can impact the company's financial statements and potentially affect the overall financial health of Management Recruiters.