The initial franchise fee is a fee paid to a franchisor in exchange for establishing a franchise relationship, along with the provision of some initial services. This fee is paid in a lump sum to the franchisor when a franchise agreement is signed.
When a franchisee pays a franchise fee to a franchisor, this payment can be considered an intangible asset. It is permissible for the franchisee to recognize this cost as an asset, since it is an asset acquired from a third party. The franchisee should amortize this asset over its estimated useful life, which is presumed to be the term of the franchise agreement.