What is the estimated useful life (in years) of Management Recruiters' purchased software?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
ars ended December 31, 2022 and December 31, 2021, respectively.
Note 10 – Intangible Assets
The following table reflects our intangible assets (in thousands except useful life):
| December 31, 2022 | December 31, 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Estimated useful life (in years) | Gross | Accumulated amortization Net | Gross | Accumulated amortization | Net | |||||
| Finite-lived intangible assets: | ||||||||||
| Franchise agreements | 15 | $ | 25,556 | $ | (2,413) | $ | 23,144 | $ 19,916 | $ (1,068) $ | 18,848 |
| Customer lists | 10 | - | - | - | 227 | (227) | - | |||
| Purchased software | 7 | 3,200 | (571) | 2,629 | 3,200 | (114) | 3,086 | |||
| Internally developed software | 5 | 2,294 | (38) | 2,256 | 916 | - | 916 | |||
| Total finite-lived intangible assets | $ | 31,050 | $ | (3,022) | $ | 28,028 | $ 24,259 | $ (1,409) $ | 22,850 | |
| Indefinite-lived intangible assets: | ||||||||||
| Domain name | Indefinite | $ | 2,226 |
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, the estimated useful life for purchased software is 7 years. This means that Management Recruiters amortizes the cost of the software over a 7-year period for accounting purposes. Amortization is a method of spreading the cost of an intangible asset over its useful life, similar to depreciation for tangible assets.
For a prospective franchisee, this indicates that the cost of any software purchased for the business will be recognized as an expense over 7 years rather than all at once in the year of purchase. This can impact the franchisee's financial statements, particularly the profit and loss statement, by spreading the expense over multiple years.
It is important to note that while the FDD specifies the useful life of purchased software, the company also internally develops software. The estimated useful life of internally developed software is 5 years, which is different from purchased software. This difference in useful life can affect the amortization expense recognized each year, depending on the relative amounts of purchased versus internally developed software used in the business.