How does Corner Bakery Cafe amortize its franchise agreements?
Corner_Bakery_Cafe Franchise · 2025 FDDAnswer from 2025 FDD Document
ue has been assigned to this related party licensing agreement given that no monetary consideration was required of the Company.
Franchise Agreements
The Company's franchise agreements result from franchise rights acquired from acquisitions and are initially recorded at fair value. The Company amortizes the franchise agreements over their estimated useful life on a straight-line basis.
Impairment
Long-lived assets, such as franchise agreements, are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of these assets and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed by using internally developed discounted cash flows estimates, quoted market prices, when available and independent appraisals to determine fair value. The determination whether long-lived assets have become impaired involves a significant level of judgement in the assumptions underlying the approach used to determine the estimated future cash flows expected to result from the use of those assets. Changes in the Company's strategy, assumptions, and/or market conditions could significantly impact these judgements and require adjustments to recorded amounts of long-lived assets. No impairment triggering events were identified during 2024 and 2023.
Contract Liabilities
Initial franchisee fees are recorded as contract liabilities and recognized as revenue when earned. As of December 31, 2024 and 2023 there were no amounts yet to be recognized for contracts with franchisees.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 55)
What This Means (2025 FDD)
According to Corner Bakery Cafe's 2025 Franchise Disclosure Document, the company amortizes its franchise agreements over their estimated useful life using a straight-line basis. These franchise agreements result from franchise rights acquired from acquisitions and are initially recorded at fair value.
Corner Bakery Cafe reviews long-lived assets like franchise agreements for impairment whenever events or changes in business circumstances suggest that the carrying amount of the assets may not be recoverable. An impairment loss is recognized if the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition are less than their carrying amount. The assessment of impairment involves significant judgment in the assumptions underlying the estimated future cash flows.
As of December 31, 2024, the average remaining life of acquired franchise agreements was 87 months. During the fourth quarter of 2024, Corner Bakery Cafe management performed its annual impairment review and determined that the carrying value of the assets was not impaired. This indicates that the company believes the value of its franchise agreements is still supported by their future earnings potential.