How does 1 800 Packouts determine the value of its 'Goodwill, net' asset?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
and contract liabilities were recognized at carryover value from the predecessor, rather than at fair value.
The following is a summary of the estimated fair values of the assets acquired and the liabilities assumed with each acquisition during the year ended December 31, 2022:
| Cash | 5,966 | $ | 118,452 | |
|---|---|---|---|---|
| Accounts receivable | 117,678 | 584,222 | ||
| Contract assets | - | 7,878,108 | ||
| Other assets | 49,810 | 392,928 | ||
| Operating lease right-of-use asset | 86,718 | - | ||
| Trade name | 4,380,000 | 6,600,000 | ||
| Franchise agreements | 1,790,000 | 11,200,000 | ||
| Goodwill | 18,214,963 | 12,067,365 | ||
| Liabilities assumed | (86,718) | (10,935,213) | ||
| Total purchase price | $ | 24,558,417 | $ | 27,905,862 |
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.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts's 2025 Franchise Disclosure Document, goodwill represents the excess of the purchase price over the fair value of net assets acquired that cannot be allocated to separately identifiable intangible assets. The assets acquired and liabilities assumed are recorded based on their estimated fair values as of the date of acquisition, as determined by the company's management. This excess amount is then recorded as goodwill. The value of goodwill is attributed to factors such as the company's ability to grow due to additional capital and strategic expertise from the new ownership group.
For 1 800 Packouts, identifiable intangible assets primarily consist of trade names and franchise agreements. These assets are amortized using the straight-line method over the estimated useful life of the asset. The estimated useful life for trade names is 15 years, for franchise agreements it is 13 to 15 years, and for goodwill, it is 10 years.
1 800 Packouts amortizes goodwill over a period of ten years and evaluates the recoverability of the carrying amount of goodwill at the entity level whenever events or circumstances suggest that the carrying amount may not be recoverable. Management determined that there was no impairment as of December 31, 2024 and 2023. A prospective franchisee should be aware that goodwill can fluctuate significantly based on company acquisitions and valuation adjustments.