What do the definite-lived intangible assets of Carls consist of, and how are they amortized?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Our definite-lived intangible assets consist of franchise agreements and favorable lease agreements and are amortized on a straight-line basis over their estimated useful lives. Our definite-lived intangible assets are tested for impairment when events or circumstances indicate the carrying value may be impaired. Refer to discussion of facility action charges for a discussion of impairment of restaurant-level long-lived assets.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the company's definite-lived intangible assets consist of franchise agreements and favorable lease agreements. These assets are amortized using the straight-line method over their estimated useful lives.
This means that Carls recognizes the cost of these intangible assets as an expense evenly over the period that they are expected to provide benefit. For a franchisee, this implies that the value of the franchise agreement and any favorable lease terms obtained are systematically reduced on the company's balance sheet over time, reflecting their use in generating revenue.
Carls also tests these definite-lived intangible assets for impairment when events or circumstances suggest that their carrying value may not be recoverable. This is a standard accounting practice to ensure that the value of assets recorded on the balance sheet accurately reflects their current worth. If impairment is detected, the asset's value is written down to its fair value, resulting in a loss recognized on the income statement.