Under what circumstances are Atwell Suites contract costs reviewed for impairment?
Atwell_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
arantees reduces the overall transaction price and is recognized as a deduction to revenue over the term of the agreement. Performance guarantee assets of $5.5 million and $6.8 million are included in contract assets on the consolidated balance sheets at December 31, 2024 and 2023, respectively.
Typically, contract assets are not financial assets as they represent amounts paid by the Company at the beginning of a contract, and so are tested for impairment based upon estimated future cash flows rather than with reference to expected credit losses. Contract assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
Source: Item 23 — Receipts (FDD pages 99–486)
What This Means (2025 FDD)
According to Atwell Suites' 2025 Franchise Disclosure Document, contract costs, which are certain costs incurred to secure management and franchise agreements, such as developer commissions, are capitalized and amortized over the initial term of the related contract. These costs are presented as 'Contract costs' in the consolidated balance sheets.
The FDD states that Atwell Suites reviews these contract costs for impairment whenever events or changes in circumstances suggest that the carrying value of the asset may not be recoverable. This means that if something happens that indicates the value of the contract cost has decreased, Atwell Suites will review it to determine if an impairment loss needs to be recognized.
If the estimated undiscounted cash flows are less than the carrying value, Atwell Suites will charge an impairment loss to the consolidated statements of net income. The loss is based on the difference between the carrying value and the estimated fair value, which is determined using estimated discounted future cash flows. This process ensures that the financial statements accurately reflect the value of the contract costs and any potential losses.