Under what circumstances does Crab N Spice review long-lived assets for impairment?
Crab_N_Spice Franchise · 2024 FDDAnswer from 2024 FDD Document
The Company reviews long-lived assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is present when the sum of the undiscounted estimated future cash flows expected to result from use of the assets is less than carrying value. If impairment is present, the carrying value of the impaired asset is reduced to its fair value. As of December 31, 2023, December 31, 2022, & December 31, 2021, no impairment loss has been recognized for long-lived assets.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 40–50)
What This Means (2024 FDD)
According to the 2024 FDD, Crab N Spice reviews long-lived assets for impairment when events or circumstances suggest that the carrying value of these assets may not be fully recoverable. This means that if there are indicators that the asset's value has declined significantly, Crab N Spice assesses whether the expected future cash flows from using the asset are less than its current recorded value.
If the assessment reveals that the asset is impaired, Crab N Spice reduces the asset's carrying value to its fair value. The FDD states that as of December 31, 2023, December 31, 2022, and December 31, 2021, no impairment loss had been recognized for long-lived assets.
For a prospective franchisee, this policy is important because it affects the reported value of Crab N Spice's assets and, consequently, its financial position. Understanding the conditions under which Crab N Spice recognizes impairment can provide insight into how the company manages and values its assets, and how potential losses are accounted for. It also assures the franchisee that Crab N Spice is following standard accounting practices by reviewing assets for potential overvaluation.