How does Christian Brothers Automotive recognize an allowance for credit losses for trade and other receivables?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
n January 1, 2023, the Company adopted the ASU modified retrospective. There was no adjustment to retained earnings upon adoption.
The Company recognizes an allowance for credit losses for trade and other receivables to present the net amount expected to be collected as of the balance sheet date. Such allowance is based on the credit losses expected to arise over the life of the asset which includes consideration of past events and historical loss experience, current events and future events based on our expectation as of the balance sheet date. Receivables are written off when the Company determines that such receivables are deemed uncollectible. The Company pools its receivables based on similar risk characteristics in estimating its expected credit losses. In situations where a receivable does not share the same risk characteristics with other receivables, the Company measures those receivables individually. The Company also continuously evaluates such pooling decisions and adjusts as needed from period to period as risk characteristics change.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less from date of purchase to be cash and cash equivalents.
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. At times, the Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management monitors the credit ratings and concentration of risk with these financial institutions on a continuing basis to safeguard cash deposits.
Restricted Cash
The Company receives and maintains national marketing fund for all franchise stores. Fund is restricted for national marketing expenses. Total restricted cash at December 31, 2023 and 2022 were approximately $4,046,000 and $1,327,000, respectively.
Revenue Recognition
The Company's revenues consist of franchise fee revenue, royalty fees, rental revenue and other services revenue. The Company recognizes revenue following the five-step model:
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- Identify the contract(s) with a customer
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- Identify the performance obligations in the contract
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- Determine the transaction price
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- Allocate the transaction price to the performance obligations
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- Recognize revenue when (or as) the entity satisfies a performance obligation
Notes to Consolidated Financial Statements December 31, 2023 and 2022
Franchise Fees
Franchise fees are collected in installments;
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, the company recognizes an allowance for credit losses for trade and other receivables to present the net amount expected to be collected as of the balance sheet date. This allowance is based on the credit losses expected to arise over the life of the asset, considering past events, historical loss experience, current events, and future expectations as of the balance sheet date. Receivables are written off when Christian Brothers Automotive determines they are uncollectible.
Christian Brothers Automotive pools its receivables based on similar risk characteristics to estimate expected credit losses. If a receivable does not share the same risk characteristics as others, it is measured individually. The company continuously evaluates these pooling decisions and adjusts them as needed when risk characteristics change. This approach ensures that the allowance for credit losses accurately reflects the anticipated collectibility of receivables.
Prior to January 1, 2023, Christian Brothers Automotive estimated accounts receivable at their net realizable value and management periodically reviewed all accounts receivable to determine if any were considered uncollectible based upon the age of the receivable and the creditworthiness of the parties involved. Delinquent receivables were written off based on individual credit evaluation and specific circumstances of the customer. As of December 31, 2022, the Company determined that an allowance for credit losses was not needed.
Effective January 1, 2023, Christian Brothers Automotive utilizes the loss rate method in determining its lifetime expected credit losses on its account receivables. This method calculates an estimate of losses based primarily on the Company's historical loss experience. In determining its loss rates, the Company evaluates information related to its historical losses, adjusted for current conditions and further adjusted for the period of time that can be reasonably forecasted. Qualitative and quantitative adjustments related to current conditions and the reasonable and supportable forecast period consider all the following past due receivables, the customer creditworthiness, changes in the terms of receivables, effect of other external forces such as competition, and legal and regulatory requirements on the level of estimated credit losses in the existing receivables. As of December 31, 2023, the Company determined that an allowance for credit losses was not needed.