What happens if the carrying value of Batteries Plus Bulbs' long-lived assets is not recoverable?

According to Batteries Plus Bulbs' 2025 Franchise Disclosure Document, the company reviews its long-lived assets, which primarily consist of property and equipment, for impairment. This review occurs whenever events or changes in circumstances suggest that the carrying value of an asset might not be recoverable. The carrying value represents the recorded cost of an asset less any accumulated depreciation. Circumstances that could trigger a review include a significant decrease in the market value of an asset, a change in the way an asset is used, or a projection of continuing losses associated with an asset.

If Batteries Plus Bulbs determines that an asset's carrying value is not fully recoverable based on the future, undiscounted cash flows expected to be generated by the asset, the company will recognize an impairment loss. This loss is calculated as the difference between the asset's carrying value and its estimated fair value. The fair value is typically determined based on the discounted net future cash flows, which takes into account the time value of money and the risks associated with the asset.

For a prospective Batteries Plus Bulbs franchisee, this accounting practice means that the value of assets like equipment and property could be reduced on the company's balance sheet if their expected future performance declines. However, the FDD states that Batteries Plus Bulbs performed an assessment of property and equipment in 2023 and 2022, which resulted in no impairment to long-lived assets. This indicates that, at least in those years, the company did not have to write down the value of its assets due to impairment.