Under what condition does Checkers perform impairment testing on goodwill?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Goodwill represents the excess of the consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed in a business combination. Goodwill is primarily attributable to the deferred tax liability created by the business combination. The Company elected to amortize the goodwill over a 10-year period on a straight-line basis. Impairment testing is performed at the enterprise level upon the occurrence of a triggering event indication that the fair value of the Company might be less than its carrying amount. When a triggering event occurs, the Company has the option to perform a qualitative assessment to determine whether a quantitative test is needed. If that assessment demonstrates that it is more likely than not that an impairment does not exist, no further testing is required. If impairment of goodwill is more likely than not, a quantitative test is required that compares the fair value of the Company with its carrying amount. If the carrying amount exceeds fair value, that amount represents the impairment loss to be recognized, up to the carrying amount of goodwill. See Note 11. Goodwill and Intangible Assets, Net.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers's 2025 Franchise Disclosure Document, impairment testing on goodwill is conducted at the enterprise level when a triggering event occurs, suggesting that the fair value of the company might be less than its carrying amount. When such a triggering event happens, Checkers has the option to first perform a qualitative assessment to determine if a quantitative test is necessary. If the qualitative assessment indicates that impairment is unlikely, no further testing is required. However, if impairment is deemed more likely than not, a quantitative test is then performed, comparing the fair value of Checkers with its carrying amount.
If the carrying amount exceeds the fair value, the difference represents the impairment loss, which is recognized up to the carrying amount of the goodwill. This process allows Checkers to regularly evaluate the value of its goodwill and adjust its financial statements accordingly.
For a prospective franchisee, this means that the financial health and valuation of the Checkers organization are regularly scrutinized. Significant negative events impacting the company's overall value could trigger these impairment tests, potentially affecting the reported financial performance of the franchisor. It is important for franchisees to understand these accounting practices, as they reflect the underlying financial stability and performance of the Checkers brand.