How does Management Recruiters measure intangible assets that are internally developed?
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, intangible assets that are internally developed are measured at cost. Specifically, Management Recruiters capitalizes the costs associated with developing or purchasing computer software for internal use, but only those costs that are incurred during the application development stage. These capitalized costs include fees paid to third parties for development services and payroll costs for the time Management Recruiters' employees spend developing the software.
Costs incurred during the preliminary project stage and the post-implementation stage are expensed as they occur. The capitalized development costs are then amortized using the straight-line method over the estimated useful life of the software.
The FDD emphasizes that determining which costs to capitalize and assessing the ongoing recoverability of these development costs requires considerable judgment by Management Recruiters' management. This judgment involves evaluating external factors such as technological and economic feasibility, as well as the estimated economic life of the software. This means that the value of these assets on Management Recruiters' balance sheet is subject to management's assessment of these factors, which could change over time and impact the company's financial statements.