Why does All Dogs Unleashed designate the estimates for non-recurring fair value measurements as Level 3?
All_Dogs_Unleashed Franchise · 2025 FDDAnswer from 2025 FDD Document
Assets and liabilities that are carried at fair value are classified and disclosed in one of the following three categories:
- Level 1: Quoted market prices in active markets for identical assets and liabilities.
- Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
- Level 3: Unobservable inputs that are not corroborated by market data
Non-recurring fair value measurements include the assessment of intangible assets for impairment. As there is no corroborating market activity to support the assumptions used, the Company has designated these estimates as Level 3.
Source: Item 23 — RECEIPTS (FDD pages 49–158)
What This Means (2025 FDD)
According to All Dogs Unleashed's 2025 Franchise Disclosure Document, the company classifies assets and liabilities carried at fair value into three categories based on the reliability of the inputs used to determine fair value. Level 3 assets are those with unobservable inputs not corroborated by market data.
All Dogs Unleashed designates non-recurring fair value measurements, specifically the assessment of intangible assets for impairment, as Level 3 because there is no corroborating market activity to support the assumptions used in these estimates. This means that the valuation of these assets relies heavily on the company's own judgment and internal data rather than external market benchmarks.
For a prospective All Dogs Unleashed franchisee, this classification indicates that the valuation of certain assets, particularly intangible ones, involves a higher degree of subjectivity and estimation. While this is an accounting practice, it highlights the importance of understanding the assumptions and methods used by All Dogs Unleashed in valuing its assets, as these can significantly impact the company's financial statements. Franchisees may want to inquire about the specific processes and data used for these valuations to better assess the financial health and stability of the franchisor.