For Apricot Lane, what is the basis for the categorization of an instrument within the fair value hierarchy?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
The determination of what constitutes observable inputs requires management's judgement. Management considers observable inputs to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an instrument within the fair value hierarchy is based on the pricing transparency of the instrument and does not necessarily correspond to management's perceived risk of that instrument. As of December 31, 2024 and 2023, all financial instruments are Level 1.
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, the categorization of an instrument within the fair value hierarchy is determined by the pricing transparency of the instrument. This categorization does not necessarily reflect management's perceived risk associated with that instrument. As of December 31, 2024 and 2023, all financial instruments were categorized as Level 1.
The fair value hierarchy prioritizes the quality and reliability of information used to determine fair values, dividing them into three levels. Level 1 includes quoted market prices in active markets for identical assets or liabilities. Level 2 consists of observable market-based inputs or unobservable inputs corroborated by market data. Level 3 includes unobservable inputs not corroborated by market data.
Management's judgment is required to determine what constitutes observable inputs. They consider observable inputs to be market data that is readily available, regularly distributed or updated, reliable, verifiable, non-proprietary, and provided by multiple independent sources actively involved in the relevant market. This approach ensures that the valuation is based on the most transparent and reliable data available, regardless of any internal risk assessment.