What approach does Browns Chicken use to review goodwill for impairment?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
GOODWILL
Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed at least annually for impairment and whenever there is an impairment indicator, using a fair-value based approach. The Company conducts its annual impairment evaluation in the fourth quarter of each year. No impairment was indicated for the years ended December 31, 2024 and 2023. The recoverability of goodwill is measured using a two-step process. Step one of the test compared the fair value of each reporting unit to its book value. Step two, which compares the book value of the goodwill to its implied fair value, was not necessary since there were no indicators of potential impairment from step one.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, goodwill, which represents the excess of cost over the fair value of net assets acquired in business combinations, is not amortized. Instead, Browns Chicken reviews it at least annually for impairment, and also whenever there is an indication of impairment. This review uses a fair-value based approach. The company conducts its annual impairment evaluation in the fourth quarter of each year.
The recoverability of goodwill is assessed using a two-step process. The first step involves comparing the fair value of each reporting unit to its book value. If the fair value is less than the book value, then the second step is performed. The second step compares the book value of the goodwill to its implied fair value.
For the years ending December 31, 2024 and 2023, the FDD states that no impairment was indicated. This means that in the first step of the goodwill recoverability test, the fair value of each reporting unit was greater than its book value, so the second step was not necessary.