Under what circumstances are Crowne Plaza contract costs reviewed for impairment?
Crowne_Plaza Franchise · 2025 FDDAnswer from 2025 FDD Document
Contract costs are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable with reference to the future expected cash flows from the contract. 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, contract costs are reviewed for impairment when specific conditions arise. These costs, which include expenses incurred to secure management and franchise agreements (such as developer commissions), are initially capitalized and then amortized over the contract's initial term.
The review for impairment occurs when events or changes in circumstances suggest that the carrying value of these contract costs may not be recoverable. This assessment is made with reference to the future expected cash flows from the contract.
If the estimated undiscounted cash flows are projected to be less than the carrying value of the contract costs, Crowne Plaza will recognize an impairment loss. This loss is calculated as the difference between the carrying value and the estimated fair value, with the fair value determined based on estimated discounted future cash flows. This process ensures that the value of the contract costs on Crowne Plaza's financial statements accurately reflects their expected future economic benefit.