How does Management Recruiters record intangible assets that have been acquired?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
0- at December 31, 2021 and December 31, 2020, respectively.
Intangible Assets
Intangible assets acquired are recorded at fair value. We test our finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. We test our indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If the carrying value exceeds the fair value, we recognize an impairment in an amount equal to the excess, not to exceed the carrying value. Management uses considerable judgment to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. There were no intangible asset impairment charges in 2021 or 2020.
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives, which ranges from 7 to 15 years. Our finitelived intangible assets include acquired franchise agreements, acquired customer lists, and purchased software. Our indefinite-lived intangible assets include an acquired domain name. For additional information related to significant additions to intangible assets, see Note 2 - Acquisitions.
Intangible Assets – Internal Use Software
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 when incurred during the preliminary project stage and the post-implementation stage.
Capitalized development costs will be amortized on a straight-line 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.
Provision for Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.
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 the company acquires are recorded at their fair value. Management Recruiters assesses these assets for impairment, testing finite-lived assets when events suggest the carrying value might not be recoverable. Indefinite-lived intangible assets are tested annually or when circumstances indicate potential non-recoverability. If the carrying value exceeds the fair value, Management Recruiters recognizes an impairment equal to the excess, but not exceeding the carrying value. The company's management uses considerable judgment in determining key assumptions such as projected revenue, royalty rates, and discount rates.
Finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives, which range from 5 to 15 years. These assets include acquired franchise agreements, customer relationships, customer lists, internally developed software, and purchased software. Indefinite-lived intangible assets include acquired domain names and trade names. Significant additions to intangible assets are further detailed in Note 2 - Acquisitions.
When Management Recruiters purchases a group of assets in a transaction that is not accounted for as a business combination, the company uses a cost accumulation model. The cost of acquisition is allocated to the acquired assets based on their relative fair values, and goodwill is not recognized. Direct transaction costs are treated as consideration transferred and are capitalized as part of the asset's cost. Contingent consideration is measured at fair value at the acquisition date and remeasured each reporting period, with changes recognized during the period.