How does Beehive Homes utilize fair value in its financial reporting for assets and liabilities?
Beehive_Homes Franchise · 2025 FDDAnswer from 2025 FDD Document
05,869, respectively.
Note A – Significant Accounting Policies (Continued)
Fair Value
The Company uses fair value for reporting financial assets and liabilities. A hierarchy for reporting the reliability of input measurements is used to assess fair value for all assets and liabilities. Fair value is defined as the selling price that would be received for an asset, or paid to transfer a liability, in the principal or most advantageous market on the measurement date. The hierarchy established prioritizes fair value measurements based on the types of inputs used in the valuation technique. Certain financial instruments are carried at cost on the balance sheet, which approximates fair value due to their short-term highly liquid nature.
Accounts Receivable
The Company has receivables for royalties and initial franchise set-up fees. Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to a credit loss allowance and a credit to receivables. The balance of the allowance for credit losses was $0, $0, and $90,000 at December 31, 2024, 2023, and 2022, respectively.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three to fifteen years.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Source: Item 23 — RECEIPTS (FDD pages 34–123)
What This Means (2025 FDD)
According to Beehive Homes' 2025 Franchise Disclosure Document, the company uses fair value for reporting financial assets and liabilities. Beehive Homes employs a hierarchy to assess the reliability of input measurements when determining fair value. Fair value is defined as the price that would be received for selling an asset or paid to transfer a liability in the principal or most advantageous market on the measurement date. The hierarchy prioritizes fair value measurements based on the types of inputs used in the valuation technique. Certain financial instruments are carried at cost on the balance sheet, which approximates fair value due to their short-term highly liquid nature.
For accounts receivable, which include royalties and initial franchise set-up fees, Beehive Homes states them at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts based on their assessment of individual accounts. Balances that remain outstanding after reasonable collection efforts are written off through a charge to a credit loss allowance. The balance of the allowance for credit losses was $0 at December 31, 2024 and 2023, and $90,000 at December 31, 2022.
This approach to fair value and accounts receivable provides transparency into how Beehive Homes values its assets and liabilities, and manages potential credit losses. Prospective franchisees can gain insight into the company's financial practices and risk management by understanding these accounting policies. The use of estimates by management in preparing financial statements also means that actual results could differ from those estimates.