According to Checkersrallys' financial statements, what does goodwill primarily represent?
Checkersrallys 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 Checkersrallys' 2025 Franchise Disclosure 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. The FDD states that goodwill is primarily attributable to the deferred tax liability created by the business combination.
Checkersrallys has elected to amortize the goodwill over a 10-year period using the straight-line method. This means that the value of the goodwill is gradually reduced over 10 years in equal installments.
Impairment testing is performed at the enterprise level when a triggering event occurs, indicating that the fair value of the company might be less than its carrying amount. In such cases, Checkersrallys has the option to perform a qualitative assessment to determine whether a quantitative test is needed. If impairment of goodwill is more likely than not, a quantitative test is required to compare 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. Prospective franchisees should be aware of how goodwill is treated on Checkersrallys' balance sheet, as it can affect the overall financial health and valuation of the company.