How does Cost Cutters Family Hair Salon assess goodwill impairment between annual assessments?
Cost_Cutters_Family_Hair_Salon Franchise · 2024 FDDAnswer from 2024 FDD Document
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Goodwill:
As of June 30, 2023 and 2022, the Franchise reporting unit had $173.8 and $174.4 million, respectively, of goodwill and the Company-owned reporting unit had no goodwill for both periods. See Note 5 to the Consolidated Financial Statements for changes to the goodwill balance. The Company assesses goodwill impairment on an annual basis as of April 30, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Goodwill impairment assessments are performed at the reporting unit level, which is the same as the Company's operating segments. The goodwill assessment involves a one-step comparison of the reporting unit's fair value to its carrying value, including goodwill (Step 1). If the reporting unit's fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit's fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit.
In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting units was less than its carrying value (Step 0). Qualitative factors could include, but are not limited to, economic, market and industry conditions, cost factors and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determined it is more likely than not that the carrying value is less than the fair value, then performing Step 1 of the goodwill impairment assessment is unnecessary.
The carrying value of each reporting unit is based on the assets and liabilities associated with the operat
Source: Item 23 — RECEIPT (FDD pages 76–439)
What This Means (2024 FDD)
According to Cost Cutters Family Hair Salon's 2024 Franchise Disclosure Document, the company assesses goodwill impairment on an annual basis as of April 30th. However, between these annual assessments, Cost Cutters Family Hair Salon will also assess for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
In these interim assessments, Cost Cutters Family Hair Salon may first evaluate qualitative factors to determine if it is more likely than not that the fair value of the reporting units is less than its carrying value. These qualitative factors could include economic, market, and industry conditions, cost factors, and the overall financial performance of the reporting unit. If, after assessing these factors, Cost Cutters Family Hair Salon determines that it is more likely than not that the carrying value is less than the fair value, then proceeding to Step 1 of the goodwill impairment assessment becomes unnecessary.
The goodwill assessment itself involves a one-step comparison of the reporting unit's fair value to its carrying value, including goodwill. If the fair value exceeds the carrying value, no further procedures are required. However, if the fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit. The carrying value of each reporting unit is based on the assets and liabilities associated with its operations, including the allocation of shared or corporate balances, generally based on the number of salons or expenses in each reporting unit as a percentage of the total.