For Crowne Plaza, how is the cost of acquiring management agreements as part of a business combination treated?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
The cost of acquiring management agreements as part of a business combination is capitalized and amortized on a straight-line basis over the period of the management agreement, including any extension periods at the Company's option.
The Company evaluates the carrying value of these assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the estimated undiscounted cash flows are less than carrying value, an impairment loss is charged to the consolidated statements of net income based on the difference between the carrying value and the estimated fair value. Fair value is based on estimated discounted future cash flows.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to Crowne Plaza's 2025 Franchise Disclosure Document, the cost associated with acquiring management agreements during a business combination is treated as an intangible asset with a finite life. This means Crowne Plaza capitalizes the cost, essentially recording it as an asset on its balance sheet rather than expensing it immediately.
Subsequently, Crowne Plaza amortizes this capitalized cost on a straight-line basis over the duration of the management agreement. This amortization includes any extension periods that Crowne Plaza may opt to exercise. Straight-line amortization means the same amount of expense is recognized each period, spreading the cost evenly over the life of the agreement.
Furthermore, Crowne Plaza evaluates the carrying value of these intangible assets for impairment. This assessment is triggered by events or changes in circumstances that suggest the asset's carrying value may not be recoverable. If the estimated undiscounted cash flows are less than the carrying value, Crowne Plaza recognizes an impairment loss. The loss is calculated as the difference between the carrying value and the estimated fair value, with fair value determined based on estimated discounted future cash flows. This ensures that the value of the asset on the balance sheet reflects its true economic worth.