Under what circumstances would Chesters review goodwill for possible impairment more frequently than annually?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has adopted the accounting alternative that permits nonpublic entities to elect to amortize goodwill on a straight-line basis over ten years. Goodwill is assigned to specific reporting units and is reviewed for possible impairment annually or more frequently if events or circumstances indicated that a reporting unit's carrying amount is greater than its fair value. An impairment loss is recognized to the extent the carrying amount of goodwill exceeds its estimated fair value. There were no impairment charges recorded in years 2024 and 2023.
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters' 2025 Franchise Disclosure Document, Chesters will review goodwill for possible impairment more frequently than annually if events or circumstances indicate that a reporting unit's carrying amount is greater than its fair value. Goodwill is an intangible asset that represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
For a prospective Chesters franchisee, this means that the franchisor is actively monitoring the financial health of its reporting units. If there are significant events or changes in circumstances that suggest the value of a reporting unit has declined below its carrying amount, Chesters will conduct a review to determine if an impairment loss needs to be recognized. This process ensures that the value of goodwill on Chesters' balance sheet accurately reflects its current fair value.
This accounting practice is in line with standard accounting principles, ensuring that the financial statements provide a fair and accurate representation of Chesters' financial position. Franchisees can take comfort in knowing that Chesters is diligent in assessing and reporting the value of its assets, which contributes to the overall transparency and reliability of the financial information provided.