How did Checkersrallys elect to amortize goodwill?
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's 2025 Franchise Disclosure Document, the company has elected to amortize goodwill over a 10-year period using the straight-line method. Goodwill, in this context, represents the excess of consideration transferred over the net fair values of acquired assets and assumed liabilities in a business combination. The goodwill is primarily attributed to the deferred tax liability resulting from the business combination.
In practical terms, this means that Checkersrallys spreads the cost of goodwill evenly over a decade for accounting purposes. This affects the company's financial statements by reducing the reported value of goodwill each year and recognizing amortization expense.
Additionally, Checkersrallys conducts impairment testing at the enterprise level if there is a triggering event that suggests the company's fair value might be less than its carrying amount. The company can perform a qualitative assessment to determine if a quantitative test is needed, and if impairment is likely, a quantitative test is required to compare the fair value of the company with its carrying amount. If the carrying amount exceeds the fair value, the difference is recognized as an impairment loss, up to the carrying amount of goodwill.