In an asset acquisition, does Embassy Suites recognize goodwill?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
We make certain judgments to determine whether a transaction should be accounted for as a business combination or an asset acquisition. These judgments include the assessment of the inputs, processes and outputs associated with an acquired set of activities and whether the fair value of total assets acquired is concentrated to a single identifiable asset or group of similar assets. We account for a transaction as a business combination when the assets acquired include inputs and one or more substantive processes that, together, significantly contribute to the ability to create outputs and substantially all of the total fair value of the assets acquired is not concentrated to a single identifiable asset or group of similar assets. Otherwise, we account for the transaction as an asset acquisition.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. We allocate the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed based on their relative fair values. We do not recognize any goodwill in an asset acquisition.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, Embassy Suites does not recognize goodwill in an asset acquisition. The document specifies that Embassy Suites makes judgments to determine whether a transaction should be accounted for as a business combination or an asset acquisition. These judgments involve assessing the inputs, processes, and outputs associated with an acquired set of activities, and whether the fair value of total assets acquired is concentrated to a single identifiable asset or group of similar assets.
If the acquisition does not meet the criteria for a business combination, Embassy Suites accounts for it as an asset acquisition. In such cases, the cost of the acquisition, including direct and incremental transaction costs, is allocated to the individual assets acquired and liabilities assumed based on their relative fair values.
This accounting treatment means that when Embassy Suites acquires assets rather than an entire business, it will not record any goodwill on its financial statements. Instead, the purchase price is assigned to the identifiable assets and liabilities. This policy is important for prospective franchisees to understand, as it clarifies how Embassy Suites accounts for acquisitions and manages its financial reporting.