When does 360 Painting test goodwill for impairment annually?
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. The Company chose to perform a qualitative impairment test for goodwill as of December 31, 2024 and 2023. The Company determined the fair value of goodwill exceeds the carrying value and no further analysis is required as of December 31, 2024 and 2023.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to 360 Painting's 2025 Franchise Disclosure Document, goodwill is tested for impairment annually. The test is conducted as of the last day of each fiscal year. This aligns with the guidance provided by FASB ASU 2021-03, "Accounting Alternative for Evaluating Triggering Events." Additionally, 360 Painting evaluates whether any triggering events existed based on the facts and circumstances at year-end.
360 Painting has the option to first assess qualitative factors to determine if events or circumstances suggest that the estimated fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that the carrying value more likely than not exceeds the fair value, a quantitative impairment test is performed. Alternatively, 360 Painting can choose to proceed directly to the quantitative impairment test without performing the qualitative assessment.
The FDD states that the 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. For the years ending December 31, 2024 and 2023, 360 Painting chose to perform a qualitative impairment test for goodwill. The company determined that the fair value of goodwill exceeded the carrying value, and therefore, no further analysis was required as of December 31, 2024 and 2023.
For a prospective franchisee, this means that 360 Painting regularly assesses the value of its goodwill to ensure it is accurately reflected in its financial statements. This process can impact the company's reported financial performance and overall financial health, which is information a franchisee may want to monitor.