How does Bath Tune Up assess the recoverability of long-lived assets?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company reviews long-lived assets held and used and capitalized software for impairment whenever circumstances indicate that the carrying amount of assets may not be fully recoverable. If so indicated, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of an asset over its remaining life can be recovered based upon management's best estimate of the undiscounted future operating cash flows (excluding interest charges) related to the long-lived asset or group of assets and liabilities in which the long-lived asset generates cash flows. If the sum of such undiscounted cash flows is less than the carrying value of the asset (group), there is an indicator of impairment. The amount of impairment, if any, represents the excess of the carrying value of the asset (group) over fair value. Fair value is determined by market price, if available, or an estimate of projected future operating cash flows discounted using a rate that reflects market participant assumptions. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Capitalized projects are amortized using the straight-line method. Research and development costs, training costs and software maintenance costs are expensed as incurred.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to Bath Tune Up's 2025 Franchise Disclosure Document, the company reviews long-lived assets and capitalized software for impairment when circumstances suggest that the carrying amount of the assets may not be fully recoverable. This means that Bath Tune Up periodically assesses whether the recorded value of its assets, like computer software, fixtures, and equipment, is still justified by their expected future use.
To determine recoverability, Bath Tune Up estimates the undiscounted future operating cash flows expected from the asset over its remaining life. If the sum of these cash flows is less than the asset's carrying value, it indicates that the asset may be impaired. In such cases, the company calculates the impairment amount as the difference between the asset's carrying value and its fair value. Fair value is determined by market price, if available. If a market price isn't available, Bath Tune Up estimates the projected future operating cash flows and discounts them using a rate that reflects market participant assumptions.
Long-lived assets that are slated for disposal are reported at the lower of their carrying amount or their fair value, less any costs to sell. Capitalized projects are amortized using the straight-line method. Research and development costs, training costs, and software maintenance costs are expensed as they are incurred. This accounting practice ensures that Bath Tune Up's financial statements accurately reflect the value of its assets and any potential losses in value are recognized in a timely manner.