How does Crowne Plaza determine the fair value of an asset when an impairment loss is charged?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
e-share resorts, subject to a minimum annual payment to the Company. OLCC fee revenue, being the 5% commission retained by the Company, is treated as variable consideration and recognized as the underlying time-share and room revenues occur. The Company recognized $1.6 million, $1.6 million and $1.4 million in fees from OLCC during the years ended December 31, 2024, 2023 and 2022, respectively.
Contract Assets
Amounts paid to hotel owners to secure franchise agreements ("key money") are treated as consideration payable to a customer. A contract asset is recorded which is recognized as a deduction to franchise royalty fee revenue over the initial term of the agreement. Typically, contract assets are not financial assets as they represent amounts paid at the beginning of a contract, and so are tested for impairment based upon future cash flows rather than with reference to expected credit losses. Contract assets are reviewed for impairment when 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 income statement based on the difference between the carrying value and the estimated fair value. Fair value is based on estimated discounted future cash flows. No impairment loss was recognized in any of the years ended December 31, 2024, 2023 or 2022.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents and accounts receivable approximates fair value due to the nature and short-term maturities of these instruments. These financial instruments are all non-interest bearing.
Due to the nature of the line of credit and the interest rate charged to its affiliate, the fair value of the instrument approximates its carrying value. Interest is accrued on the line of credit at the IRS applicable federal interest rate, compounded quarterly. There are no fees or related costs received in respect of the line of credit.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to Crowne Plaza's 2025 Franchise Disclosure Document, when an impairment loss is charged, the fair value of the asset is based on estimated discounted future cash flows. This applies to contract assets, contract costs, property and equipment, and intangible assets with finite lives.
Specifically, Crowne Plaza reviews these assets for impairment when events or changes in circumstances suggest that the carrying value (the recorded value of the asset on the balance sheet) may not be recoverable. This could occur due to factors like adverse changes in projected revenues or expenses, significant underperformance, or negative economic trends.
If the estimated undiscounted cash flows from the asset are less than its carrying value, Crowne Plaza recognizes an impairment loss. The loss is calculated as the difference between the asset's carrying value and its estimated fair value. The fair value is determined by estimating the future cash flows expected from the asset and then discounting those cash flows to their present value. This discounted value represents the fair value used for calculating the impairment loss.
For a prospective franchisee, this means that Crowne Plaza regularly assesses the value of its assets, and if an asset's value is deemed to be lower than what is recorded, the company will adjust its financial statements to reflect this loss. This process ensures that the financial statements accurately represent the economic reality of the assets' value. Understanding this accounting practice can help franchisees better interpret Crowne Plaza's financial statements and assess the overall financial health of the company.