What valuation techniques might Boulder Designs use to determine the fair value of a long-lived asset?
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, the company reviews long-lived assets like equipment and acquired franchise agreements for impairment when events suggest the asset's carrying amount may not be recoverable. If impairment testing is necessary, Boulder Designs first compares the undiscounted cash flows expected from the asset to its carrying value.
If the carrying value cannot be recovered through undiscounted cash flows, Boulder Designs recognizes an impairment. The impairment is the difference between the asset's carrying value and its fair value.
To determine fair value, Boulder Designs may use various valuation techniques. These techniques include discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. This means that Boulder Designs has flexibility in choosing the most appropriate method for determining the fair value of its long-lived assets depending on the specific circumstances.
For a prospective franchisee, this indicates that Boulder Designs takes measures to ensure that its assets are appropriately valued on its financial statements. It also suggests that Boulder Designs is willing to use external expertise (third-party appraisals) when necessary to determine fair value.