Under what circumstances does Bath Tune Up review long-lived assets for 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. 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 these assets may not be fully recoverable. This means that if there are indications that the value of assets like computer software, fixtures, equipment, or leasehold improvements has decreased significantly, Bath Tune Up will assess whether the recorded value of those assets on their balance sheet still accurately reflects their worth.
To determine if impairment has occurred, Bath Tune Up estimates the undiscounted future operating cash flows expected from the asset over its remaining life. If the total of these cash flows is less than the asset's carrying value, it signals potential impairment. The impairment amount is then calculated as the difference between the asset's carrying value and its fair value, with fair value determined by market price or estimated future cash flows discounted at a market-based rate.
For a prospective Bath Tune Up franchisee, this policy is relevant because it affects the financial statements of the franchisor, which are included in the FDD. Understanding how Bath Tune Up accounts for and potentially impairs its assets provides insight into the company's financial health and accounting practices. Additionally, the FDD notes that long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell, and that capitalized projects are amortized using the straight-line method. Research and development costs, training costs, and software maintenance costs are expensed as incurred.