Question

Debbie acquired a franchise to operate a donut shop from dollar donuts, inc., for $100,000. she incurred an additional $4,000 in legal costs to negotiate the terms with the franchiser. in five years, the franchise contract will be renegotiated. the current contract also states that there will be a $3,000 annual fee plus a two percent charge based on the store's annual revenue, which is expected to average 90,000 per year. what is the franchise cost that should be capitalized? $100,000 $104,000 $88,000 $92,000

Answer 1

The franchisee cost that should be capitalised, will be the total amount incurred to acquire the franchisee , which is $100000, the legal fees of $4000 will also be added to the amount as it has been incurred in assciation with the acquisition thus the total cost which should be capitalised will be $100000+$4000 which comes to a total of $104000.