How does Bath Tune Up determine the fair value of long-lived assets when assessing impairment?
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.
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 for impairment when circumstances suggest that the carrying amount of those assets may not be fully recoverable. To determine if impairment has occurred, Bath Tune Up assesses whether the carrying value of an asset can be recovered over its remaining life. This assessment is based on management's best estimate of the undiscounted future operating cash flows, excluding interest charges, related to the long-lived asset.
If the sum of these undiscounted cash flows is less than the carrying value of the asset, it indicates impairment. The amount of impairment, if any, is the excess of the carrying value of the asset over its fair value. Fair value is determined by market price, if available. If a market price isn't available, Bath Tune Up estimates projected future operating cash flows discounted using a rate that reflects market participant assumptions.
For assets slated for disposal, they are reported at the lower of their carrying amount or fair value, less costs to sell. This approach ensures that Bath Tune Up's financial statements accurately reflect the value of its assets, accounting for potential losses due to impairment and aligning with standard accounting practices. This is a standard accounting practice to ensure assets are not overvalued on the balance sheet.