What constitutes a Level 1 measurement for Aira Fitness' financial instruments according to the fair value hierarchy?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
Financial Accounting Standards Board ("FASB") guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: - Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the
- reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. - Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the
- asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are
- not active). Level 3 Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
As of December 31, 2024, December 31, 2023, & December 31, 2022, the carrying amounts of the Company's financial assets and liabilities reported in the balance sheets approximate their fair value.
Source: Item 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to Aira Fitness's 2025 Franchise Disclosure Document, Level 1 measurement within the fair value hierarchy is defined as unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. This level primarily includes financial instruments valued based on quoted market prices, such as exchange-traded instruments and listed equities.
For a prospective Aira Fitness franchisee, understanding these levels is important because it relates to how the company values its financial instruments. Level 1 represents the most transparent and reliable valuation method, as it relies on real-time market data. This suggests that Aira Fitness prioritizes using observable market data when assessing the value of its financial assets and liabilities.
The FDD indicates that the company uses a hierarchy of valuation techniques based on whether the inputs are observable or unobservable, with Level 1 being the highest priority. This approach aligns with standard accounting practices and aims to provide a clear and consistent method for determining the fair value of financial instruments. The company's financial statements reflect these values, which are prepared in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2024, December 31, 2023, and December 31, 2022, the carrying amounts of Aira Fitness's financial assets and liabilities reported in the balance sheets approximate their fair value. This implies that the company's reported financial positions closely reflect the actual market values of its assets and liabilities during those periods.