What does goodwill represent for 360 Painting, according to the FDD?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill represents the excess of acquisition costs over the fair value of assets and liabilities acquired, including specifically identified intangible assets. Goodwill is not amortized but is tested for impairment annually as of the last day of each fiscal year in line with guidance prescribed by FASB ASU 2021-03 "Accounting Alternative for Evaluating Triggering Events" and evaluated if the facts and circumstances at year end indicate if any triggering event existed.
In conducting impairment testing, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. If the Company performs a qualitative assessment and determines that the carrying value more likely than not exceeds the fair value, then the quantitative impairment test is performed, otherwise no further analysis is required. The Company also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The ultimate outcome of the goodwill impairment assessment will be the same whether the Company chooses to perform the qualitative assessment or proceed directly to the quantitative impairment test.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to 360 Painting's 2025 Franchise Disclosure Document, goodwill represents the excess of acquisition costs over the fair value of assets and liabilities acquired, including specifically identified intangible assets. For 360 Painting, goodwill is not amortized, meaning its value isn't gradually reduced over time for accounting purposes. Instead, it undergoes impairment testing annually, as of the last day of each fiscal year, following the guidelines prescribed by FASB ASU 2021-03 "Accounting Alternative for Evaluating Triggering Events." This testing is also triggered if facts and circumstances at year-end indicate any triggering event existed.
During impairment testing, 360 Painting has the option to first assess qualitative factors to determine whether events or circumstances suggest that the estimated fair value of a reporting unit is less than its carrying amount. If the company determines through this qualitative assessment that the carrying value more likely than not exceeds the fair value, a quantitative impairment test is performed. Alternatively, 360 Painting can skip the qualitative assessment and proceed directly to the quantitative impairment test.
The FDD states that the ultimate outcome of the goodwill impairment assessment will be the same whether 360 Painting chooses to perform the qualitative assessment or proceeds directly to the quantitative impairment test. This accounting practice is important for prospective franchisees to understand, as it reflects how 360 Painting assesses the value of its acquisitions and intangible assets, which can impact the company's financial statements and overall financial health.