What is the reference for long-lived asset impairment in Benihana's financial statements?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
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F-2
Long-Lived Asset Impairment — Refer to Note 2 to the financial statements
Critical Audit Matter Description
Long-lived assets, which includes property and equipment and right-of-use assets for operating leases, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying values of these assets may not be fully recoverable. The impairment evaluation is performed at the individual restaurant level. Recoverability of restaurant assets is measured by a comparison of the carrying amount of an individual restaurant's assets to the estimated undiscounted future cash flows expected to be generated by those restaurant assets. 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. Property and equipment, net, and the Operating lease right-of-use assets as of December 31, 2021 were $69.6 million and $85.4 million, respectively. For the year ended December 31, 2021, no impairment loss related to long-lived assets was recognized.
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Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the reference for long-lived asset impairment can be found in Note 2 to the financial statements. Long-lived assets, including property, equipment, and right-of-use assets for operating leases, are evaluated for impairment when events or changes suggest that their carrying values may not be fully recoverable. This evaluation occurs at the individual restaurant level.
Benihana determines the recoverability of restaurant assets by comparing the carrying amount of a restaurant's assets to the estimated undiscounted future cash flows expected from those assets. If the carrying amount exceeds these future cash flows, an impairment charge is recognized. The charge is equal to the difference between the asset's carrying amount and its fair value, with the fair value determined according to ASC 820.
For example, as of December 31, 2022, Benihana's property and equipment, net, totaled $94.1 million, and operating lease right-of-use assets were $85.2 million. For the year ending December 31, 2022, Benihana did not recognize any impairment loss related to long-lived assets. The determination of possible impairment indicators for long-lived assets is considered a critical audit matter due to the significant assumptions made by management.
During the audit, procedures included testing internal controls, evaluating impairment indicators by reviewing locations with losses, and inspecting board minutes and other data to ensure consistency with management's assumptions. This process is essential for franchisees to understand how Benihana manages and assesses the value of its assets, which can impact the financial health and stability of the franchise system.