How does Benihana determine the recoverability of restaurant assets when measuring for impairment?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
evant facts and circumstances include, among others, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends. Recoverability of restaurant assets is measured by a comparison of the carrying amount of an individual restaurant's assets to the estimated identifiable undiscounted future cash flows expected to be generated by those restaurant assets. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If the carrying amount of an individual restaurant's assets exceeds its estimated undiscounted future cash flows an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The estimated fair value is determined for these assets in accordance with ASC 820.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the recoverability of restaurant assets is assessed at the individual restaurant level. Benihana compares the carrying amount of a restaurant's assets to the estimated undiscounted future cash flows expected to be generated by those assets. This involves significant judgment and relies on estimates and assumptions. Historical cash flows and other relevant facts are the primary basis for estimating future cash flows. These facts can include underperformance relative to historical data, changes in asset use, or negative economic trends.
If the carrying amount of a restaurant's assets exceeds the estimated undiscounted future cash flows, Benihana recognizes an impairment charge. The charge is equal to the amount by which the carrying amount of the asset exceeds its fair value. The estimated fair value is determined according to ASC 820, Fair Value Measurement.
For a prospective franchisee, this means that the value of the restaurant's assets on Benihana's books could be reduced if the restaurant is not expected to generate sufficient cash flow in the future. While this accounting practice doesn't directly impact the franchisee's day-to-day operations, it reflects the financial health and performance of the restaurant, which could affect the franchisee's investment and the overall stability of the business. It is important to note that for the year ended December 31, 2023, no impairment loss related to long-lived assets was recognized.