Under what circumstances will Canopy Lawn Care test for goodwill impairment between annual tests?
Canopy_Lawn_Care Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill is not amortized, but is tested for impairment using a fair value approach. If the fair value of the reporting unit is less than its carrying value, or if the fair value of the goodwill has been diminished, an impairment loss would be recorded to the extent of that difference. The Company tests for impairment as of September 30 annually. Goodwill will be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value or diminish the fair value of the goodwill. Management believes there has been no impairment of intangible assets during 2024, 2023, or 2022.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 55)
What This Means (2025 FDD)
According to Canopy Lawn Care's 2025 Franchise Disclosure Document, goodwill, which is not amortized, undergoes impairment testing using a fair value approach. The company conducts these tests annually, specifically as of September 30. However, Canopy Lawn Care will also perform impairment tests between the annual tests if certain events occur or if circumstances change.
These interim tests are triggered if an event takes place or circumstances change that would likely reduce the fair value of a reporting unit below its carrying value. This also applies if the fair value of the goodwill diminishes. If either of these scenarios occurs, Canopy Lawn Care would record an impairment loss to the extent of the difference between the fair value and the carrying value.
For prospective Canopy Lawn Care franchisees, this means that the franchisor is actively monitoring the value of its goodwill and will take action if there are indications that its value has decreased. This is a standard accounting practice to ensure that the company's financial statements accurately reflect the value of its assets. The FDD indicates that management believed there was no impairment of intangible assets during 2024, 2023, or 2022.