What is involved in the qualitative assessment of goodwill performed by Americas Best Value Inn?
Americas_Best_Value_Inn Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill is not amortized, and we test goodwill for impairment each year or more frequently should facts and circumstances indicate that it is more likely than not that the fair value is less than the carrying amount. As part of the impairment test, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value, including goodwill, is less than its carrying amount, or if we elect to bypass the qualitative assessment, we would then proceed with a quantitative assessment. The quantitative assessment involves calculating an estimated fair value based on projected future cash flows, and comparing the estimated fair value to the carrying amount, including goodwill. If the estimated fair value exceeds carrying value, including goodwill, no impairment is recognized. However, if the carrying amount, including
goodwill, exceeds fair value, an impairment loss is recognized in an amount equal to the excess, limited to the total goodwill balance.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 70–71)
What This Means (2025 FDD)
According to the 2025 Franchise Disclosure Document, Americas Best Value Inn assesses goodwill for impairment annually or more frequently if circumstances suggest the fair value is less than the carrying amount. The assessment may begin with a qualitative evaluation of factors to determine if a quantitative assessment is necessary. If the qualitative assessment indicates that it is more likely than not that the fair value, including goodwill, is less than its carrying amount, or if the company elects to bypass the qualitative assessment, a quantitative assessment is then performed.
The quantitative assessment involves calculating an estimated fair value based on projected future cash flows and comparing this to the carrying amount, including goodwill. If the estimated fair value exceeds the carrying amount, no impairment is recognized. However, if the carrying amount exceeds the fair value, an impairment loss is recognized, limited to the total goodwill balance.
For a potential Americas Best Value Inn franchisee, this means that the franchisor regularly evaluates the value of its brand and reputation (goodwill) to ensure it is accurately reflected in its financial statements. While this accounting practice doesn't directly impact day-to-day operations, it provides insight into how the franchisor views the long-term value and stability of the Americas Best Value Inn brand. Franchisees benefit from a strong, well-maintained brand, as it can influence customer perception and ultimately, the success of their individual locations.