Under what circumstances does Embassy Suites evaluate the carrying value of franchise contracts for impairment?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
We evaluate the carrying value of our franchise contracts for indicators of impairment, and, if such indicators exist, we perform an analysis to determine the recoverability of the carrying value of the asset group by comparing the expected undiscounted future cash flows to the net carrying value of the asset group. If the carrying value of the asset group is not recoverable and it exceeds the estimated fair value of the asset group, we recognize an impairment loss in our statement of comprehensive income and member's equity for the amount by which the carrying value exceeds the estimated fair value. We allocate the impairment loss related to the asset group among the various assets within the asset group pro rata based on the relative carrying values of the respective assets.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, the company evaluates the carrying value of its franchise contracts for impairment when indicators of impairment exist. If such indicators are present, Embassy Suites performs an analysis to determine if the carrying value of the asset group is recoverable. This involves comparing the expected undiscounted future cash flows to the net carrying value of the asset group.
If the carrying value of the asset group is deemed not recoverable and exceeds the estimated fair value of the asset group, Embassy Suites recognizes an impairment loss. This loss is recorded in their statement of comprehensive income and member's equity. The amount of the loss is the difference between the carrying value and the estimated fair value.
The impairment loss is then allocated among the various assets within the asset group. This allocation is done pro rata, based on the relative carrying values of the respective assets. This process ensures that the financial statements accurately reflect the value of the franchise contracts and any potential losses due to impairment.