Over what period is the favorable royalty contract being amortized by Monicals Pizza, and why?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
n in August 2015 from a franchisee, the Company has recorded a favorable royalty contract of $217,105. This asset represents the present value of estimated royalty fees that could be collected in excess of the present value of the royalty fees being collected by the existing franchisee. The asset is being amortized over 25 years, the remaining life of the existing franchise agreement at the date of the purchase. Amortization expense related to the favorable royalty contract was $8,684 for the years ended December 31, 2024 and 2023.
Amortization expense related to the favorable royalty contrac
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to the 2025 FDD, Monicals Pizza amortizes a favorable royalty contract over 25 years. This contract, valued at $217,105, was recorded in August 2015 when Monicals Pizza purchased the Paris, Illinois location from a franchisee.
The amortization period corresponds to the remaining life of the existing franchise agreement at the time of purchase. The favorable royalty contract represents the present value of estimated royalty fees that Monicals Pizza could collect, which exceeds the present value of royalty fees being collected by the previous franchisee.
For the years ending December 31, 2024 and 2023, the amortization expense related to this contract was $8,684. This accounting practice reflects how Monicals Pizza recognizes the financial benefit of the royalty differential over the duration of the original franchise agreement, spreading the income over the contract's lifespan rather than recognizing it all at once.