How does Aplus estimate the net realizable value of properties held for sale?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
Properties that have been closed and other excess real property are recorded as assets held for sale, and are written down to the lower of cost or estimated net realizable value at the time we close such stores or determine that these properties are in excess and intend to offer them for sale. We estimate the net realizable value based on our experience in utilizing or disposing of similar assets and on estimates provided by our own and third-party real estate experts. Although we have not experienced significant changes in our estimate of net realizable value, changes in real estate markets could significantly impact the net values realized from the sale of assets.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, the company records closed properties and excess real property as assets held for sale. These assets are written down to the lower of their cost or estimated net realizable value when the stores close or when Aplus determines the properties are in excess and intends to sell them.
Aplus estimates the net realizable value based on their experience in utilizing or disposing of similar assets. They also rely on estimates provided by both their own real estate experts and third-party real estate experts to determine this value. This indicates that Aplus uses a combination of internal knowledge and external professional advice to arrive at a reasonable estimate.
The FDD notes that while Aplus has not experienced significant changes in their estimates of net realizable value, fluctuations in real estate markets could significantly impact the net values realized from the sale of these assets. This highlights a risk for Aplus, as real estate market volatility could lead to lower returns than anticipated when selling properties. For a prospective franchisee, this accounting practice is important to understand because it reflects how Aplus manages and values its assets, which can impact the company's overall financial health and stability.