How does Checkersrallys define fair value in relation to financial instruments?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
of tax audits is always uncertain, the Company believes adequate amounts of tax, including interest and penalties, have been provided for any adjustments that are expected to result from those years.
Disclosure About Fair Value of Financial Instruments
The Company applies the guidance in ASC 820, Fair Value Measurements, in recording and/or disclosing assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market, or if none exists, the most advantageous market, for the specific asset or liability at the measurement date (the exit price). The fair value is required to be based on assumptions that market participants would use when pricing the asset or liability.
The three levels of the valuation hierarchy are based upon the transparency of inputs to the valuation of an asset or liability on the measurement date that are defined as follows:
- Level 1 Quoted prices (unadjusted) for an identical asset or liability in an active market.
- Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
- Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Recently Issued Accounting Guidance
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Improvements to Income Tax Disclosures. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The new requirements will be effective for annual periods beginning after December 15, 2025. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. The Company will adopt this standard for reporting periods beginning after December 15, 2025.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company adheres to ASC 820, Fair Value Measurements, for recording and disclosing assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market. If a principal market doesn't exist, the most advantageous market for the specific asset or liability at the measurement date (the exit price) is considered. The determination of fair value must be based on the assumptions that market participants would use when pricing the asset or liability.
The FDD outlines a three-level valuation hierarchy based on the transparency of inputs used to value an asset or liability. Level 1 includes quoted prices (unadjusted) for identical assets or liabilities in an active market. Level 2 includes observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs corroborated by observable market data. Level 3 includes unobservable inputs supported by little to no market activity that are significant to the fair value of the assets or liabilities.
For Checkersrallys, the carrying amounts for cash and cash equivalents, receivables, other current assets, accounts payable, and other current liabilities approximate their fair value due to their short-term nature. These financial instruments are classified as Level 1 measures within the valuation hierarchy. As of January 1, 2024, the carrying value of Checkersrallys's long-term debt, excluding finance leases and financing obligations, was $87.6 million and approximated fair value because the debt bears interest at floating rates that are reset at least quarterly. Similarly, as of January 2, 2023, the carrying value of the related party credit facility was $293.8 million and approximated fair value due to its floating interest rates.