How is the fair value determined for Crowne Plaza contracts when calculating impairment loss?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
contract asset is recorded which is recognized as a deduction to fee business revenue over the initial term of the agreement. These assets are presented as 'Contract assets' in the consolidated balance sheets. In respect of key money, $116.8 million has been paid to owners and $22.1 million recognized in revenue during the year.
In limited cases, loans can be provided to an owner, in such cases the initial credit risk will be low. The difference, if any, between the face and market value of the loan on inception is recognized as a contract asset.
In limited cases, the Company may provide performance guarantees to hotel owners. The expected value of payments under performance guarantees reduces the overall transaction price and is recognized as a deduction to revenue over the term of the agreement. Performance guarantee assets of $5.5 million and $6.8 million are included in contract assets on the consolidated balance sheets at December 31, 2024 and 2023, respectively.
Typically, contract assets are not financial assets as they represent amounts paid by the Company at the beginning of a contract, and so are tested for impairment based upon estimated future cash flows rather than with reference to expected credit losses.
Source: Item 23 — Receipts (FDD pages 100–424)
What This Means (2025 FDD)
According to Crowne Plaza's 2025 Franchise Disclosure Document, when assessing impairment loss for contract assets or costs, the fair value is determined based on estimated discounted future cash flows. This applies when events or changes suggest that the carrying value of these assets may not be recoverable.
Specifically, contract assets, which often represent amounts Crowne Plaza pays at the beginning of a contract, are tested for impairment based on estimated future cash flows. If the estimated undiscounted cash flows are less than the carrying value, an impairment loss is recognized. This loss is calculated as the difference between the carrying value and the estimated fair value, with the fair value derived from discounted future cash flows.
Similarly, contract costs, which include expenses incurred to secure management and franchise agreements, are reviewed for impairment. If the estimated undiscounted cash flows are less than the carrying value, an impairment loss is charged. Again, the fair value is determined using estimated discounted future cash flows. This approach ensures that Crowne Plaza's financial statements accurately reflect the recoverable value of its contract-related assets and costs.