For intangible assets such as a franchise, what costs do you amorizite and how much do you capitalize? In the book it says that the franchisee capitalizes the initial cost it pays to acquire the franchise. So is that the $25,000 or the $85,000? Example: On Jan. 1, 2016 Tully signed an agreement to operate as a franchisee of Rapid Copy Service, for an initial fee of $85,000. Of this amount, $25,000 was paid when the agreement was signed, and the remaining is payable in 4 annual payments of $15,000 each beginning Jan.1, 2017. The agreement provides that the down payment is not refundabe and no future services are required of the franhcisor. The present value at Jan. 2, 2016, of the 4 annual payments discounted at a14% is $43,700. The agreement aslo provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Tully's revenue from the franchise for 2016 was $900,000. Useful life of the franchise is estimated to be 10 years.
For intangible assets such as a franchise, what costs do you amorizite and how much do you capitalize? In the book it says that the franchisee capitalizes the initial cost it pays to acquire the franchise. So is that the $25,000 or the $85,000?
Example: On Jan. 1, 2016 Tully signed an agreement to operate as a franchisee of Rapid Copy Service, for an initial fee of $85,000. Of this amount, $25,000 was paid when the agreement was signed, and the remaining is payable in 4 annual payments of $15,000 each beginning Jan.1, 2017. The agreement provides that the down payment is not refundabe and no future services are required of the franhcisor. The present value at Jan. 2, 2016, of the 4 annual payments discounted at a14% is $43,700. The agreement aslo provides that 5% of the revenue from the franchise must be paid to the franchisor annually. Tully's revenue from the franchise for 2016 was $900,000. Useful life of the franchise is estimated to be 10 years.
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