Under what circumstances does Aplus evaluate indefinite-lived intangible assets for impairment more frequently than annually?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
Indefinite-lived intangible assets are composed of certain tradenames and liquor licenses which are not amortized but are evaluated for impairment annually or more frequently if events or changes occur that suggest an impairment in carrying value, such as a significant adverse change in the business climate. Indefinitelived intangible assets are evaluated for impairment by comparing each asset's fair value to its book value. Management first determines qualitatively whether it is more likely than not that an indefinite‑lived asset is impaired. If management concludes that it is more likely than not that an indefinite-lived asset is impaired, then its fair value is determined by using the discounted cash flow model based on future revenues estimated to be derived in the use of the asset.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, indefinite-lived intangible assets, such as certain tradenames and liquor licenses, are typically evaluated for impairment on an annual basis. However, Aplus will conduct these evaluations more frequently if specific events or changes occur that suggest there may be an impairment in the asset's carrying value.
These events or changes include a significant adverse change in the business climate. This means that if there are major negative shifts in the economic conditions or industry trends affecting Aplus's operations, the company will reassess the value of its indefinite-lived intangible assets to determine if their value has decreased.
To evaluate impairment, Aplus compares the fair value of each asset to its book value. Management first assesses qualitatively whether it is more likely than not that an indefinite-lived asset is impaired. If this assessment indicates impairment is likely, the fair value is determined using a discounted cash flow model, which is based on estimated future revenues derived from the asset's use. This process involves estimating future revenues and applying a discount rate to determine the present value of those revenues, which is then compared to the asset's book value to identify any impairment.