What is the initial step Boulder Designs takes when testing a long-lived asset for possible impairment?
Boulder_Designs Franchise · 2025 FDDAnswer from 2025 FDD Document
Long-lived assets, such as equipment and acquired franchise agreements, are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Source: Item 23 — RECEIPT (FDD pages 50–217)
What This Means (2025 FDD)
According to Boulder Designs' 2025 Franchise Disclosure Document, when circumstances suggest that a long-lived asset might be impaired, the company first assesses whether the asset's carrying amount is recoverable. This involves comparing the undiscounted cash flows expected to be generated by the asset to its carrying value.
If the carrying value of the long-lived asset is not recoverable based on this undiscounted cash flow analysis, Boulder Designs then recognizes an impairment. The impairment is measured as the extent to which the carrying value of the asset exceeds its fair value.
To determine fair value, Boulder Designs employs various valuation techniques. These can include discounted cash flow models, quoted market values, and third-party independent appraisals, depending on what is deemed most appropriate in the given situation. This multi-faceted approach to valuation allows Boulder Designs to make informed decisions about potential impairments to its assets.