What does Benihana management consider to be critical accounting estimates?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
, we received $18.3 million in proceeds from the CARES Act Loans, which were subsequently forgiven in 2021.
Recent Accounting Pronouncements
Refer to Note 2 of our consolidated financial statements for a detailed description of recent accounting pronouncements.
Critical Accounting Estimates
Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain, especially in light of the current economic environment due to the COVID-19 pandemic. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions.
Our significant accounting estimates are discussed in additional detail in Note 2 to our consolidated financial statements. We base our estimates on historical experience and various assumptions that we believe to be reasonable under the circumstances and we evaluate those estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. We believe that our significant accounting estimates involve a higher degree of judgment and/or complexity for the reasons discussed below:
Income Taxes
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the respective tax bases of our assets and liabilities. Deferred tax assets and liabilities are measured using current enacted rates expected to apply to taxable income in the years in which we expect the temporary differences to reverse. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.
In addition, our income tax returns are periodically audited by federal, state and foreign tax authorities. These audits include questions regarding our tax filing positions, including the timing and amount of deductions taken and the allocation of income amongst various tax jurisdictions. We evaluate our exposures associated with our various tax filing positions and record a related liability.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, critical accounting estimates are those that management considers most important to portraying the company's financial condition and results. These estimates require difficult, subjective, or complex judgments, often involving inherently uncertain matters. Benihana's management bases these estimates on historical experience and various assumptions, evaluating them regularly. However, actual results may differ due to varying assumptions or conditions.
The FDD highlights income taxes and long-lived asset impairment as specific areas requiring significant accounting estimates. For income taxes, Benihana recognizes deferred tax assets and liabilities based on differences between financial statement carrying amounts and tax bases. These are measured using current enacted rates expected to apply to taxable income when temporary differences reverse. Benihana evaluates the likelihood of realizing deferred tax asset benefits and may record a valuation allowance if some benefits may not be realized. As of December 31, 2023, Benihana had a valuation allowance of $0.6 million related to foreign tax credits they do not expect to utilize.
Long-lived assets, including property, equipment, and right-of-use assets for operating leases, are reviewed for impairment when events or changes indicate that their carrying values may not be fully recoverable. If impairment exists, a loss is recorded. Determining whether impairment exists involves significant judgment. These estimates are important for prospective franchisees to understand, as they can significantly impact Benihana's reported financial performance and stability.