How often does Carls test its trademarks/tradenames for impairment?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
Our indefinite-lived intangible assets consist of trademarks / tradenames. We test trademarks / tradenames for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. Ifwe conclude that it is more likely than not that the indefinite-lived intangible asset is impaired, we then perform a quantitative test to determine whether the carrying amount is less than the fair value of the indefinite-lived intangible asset and measure the amount of impairment, if any.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the company assesses its trademarks and tradenames, which are considered indefinite-lived intangible assets, for impairment at least annually. However, Carls may conduct these tests more frequently if specific events or changes in circumstances suggest that the carrying amount of these intangible assets may not be recoverable.
The impairment test involves first evaluating qualitative factors to determine the likelihood that the fair value of the trademark or tradename is less than its carrying amount. If it is determined that impairment is likely, a quantitative test is performed to compare the carrying amount to the fair value. If the carrying amount exceeds the fair value, an impairment charge is recognized.
For a prospective Carls franchisee, this means that the value of the brand's trademarks and tradenames is regularly reviewed to ensure it reflects their actual worth. More frequent testing could occur if there are significant negative events impacting the brand, such as a major lawsuit or a decline in brand reputation. This process helps Carls maintain accurate financial statements and ensures that the reported value of its intangible assets is realistic.