According to Checkersrallys, 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. Refer to Note 9 - Goodwill and Intangible Assets, Net for further information.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 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. Checkersrallys states that goodwill is primarily attributable to the deferred tax liability created by the business combination.
For a prospective franchisee, understanding goodwill is crucial if Checkersrallys engages in business combinations or acquisitions. Goodwill, in this context, arises when Checkersrallys acquires another business, and the purchase price exceeds the fair value of the acquired assets and assumed liabilities. The excess amount is recorded as goodwill on Checkersrallys's balance sheet. The FDD indicates that this goodwill is mainly due to deferred tax liabilities resulting from the business combination.
Checkersrallys elected to amortize the goodwill over a 10-year period on a straight-line basis. This means that the value of the goodwill is gradually reduced over ten years. Additionally, Checkersrallys performs impairment testing at the enterprise level if there is a triggering event that suggests the fair value of the company might be less than its carrying amount. This testing can involve qualitative and quantitative assessments to determine if the goodwill has lost value and needs to be written down. Prospective franchisees should be aware of how goodwill is accounted for, as it can affect the company's financial statements and overall financial health.