How does 1 800 Packouts determine the value of its 'Goodwill, net'?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
Each of these transactions have been accounted for as a business combination using the acquisition method and the operations of the acquired entities have been consolidated with the operations of the Company as of the respective dates of the transactions.
The assets acquired and liabilities assumed were recorded based on their estimated fair values as of the date of acquisition as determined by management. The excess of the purchase price over the fair values of assets acquired and liabilities assumed was recorded as goodwill. The value of goodwill recognized in connection with the transactions can be attributed to a number of business factors including, but not limited to, the ability of the Company to grow given the additional capital and strategic expertise brought to the Company by the new ownership group.
Trade names were valued using a relief from royalty discounted cash flows method. Franchise agreements were valued using excess of earnings discounted cash flows method. The estimated useful lives of trade names is 15 years, franchise agreements is 13 to 15 years, and goodwill is 10 years.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts' 2025 Franchise Disclosure Document, goodwill is determined during the acquisition of subsidiary entities. The value of acquired assets and assumed liabilities are recorded based on their estimated fair values at the time of acquisition, as determined by 1 800 Packouts' management. The excess of the purchase price over these fair values is then recorded as goodwill.
The FDD states that the value of goodwill is tied to several business factors, including the ability of 1 800 Packouts to grow due to additional capital and strategic expertise brought by the new ownership group. This suggests that 1 800 Packouts attributes the value of goodwill to the anticipated future benefits and synergies resulting from the acquisition.
1 800 Packouts amortizes goodwill over a ten-year period. Additionally, 1 800 Packouts evaluates the recoverability of the carrying amount of goodwill at the entity level whenever events or circumstances indicate that the carrying amount may not be recoverable. This means that 1 800 Packouts periodically assesses whether the recorded value of goodwill is still justified based on the performance and prospects of the acquired entity. If there is an indication that the value of goodwill has been impaired, 1 800 Packouts would recognize an impairment loss to reduce the carrying amount of goodwill to its recoverable amount.