What analysis does Exit perform at year-end to determine if digital assets are impaired?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company performs an analysis at year end to determine whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that the Company's digital assets are impaired. In determining if an impairment has occurred, the Company considers the market price of one unit of digital asset quoted on the active exchange at year end. If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.
Impairment losses, if any, are shown as impairment losses on the consolidated statements of income in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains are not recorded until realized upon sale, at which point they are presented net of any impairment losses for the same digital assets held. In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company performs an analysis at year-end to assess potential impairment of its digital assets. This analysis focuses on whether events or changes in circumstances, particularly decreases in quoted prices on active exchanges, suggest that impairment is likely.
To determine if impairment has occurred, Exit considers the market price of one unit of digital asset quoted on the active exchange at year-end. If the current carrying value of a digital asset exceeds its fair value, an impairment loss is recognized. The loss amount equals the difference between the asset's carrying value and the determined price.
Impairment losses are reported on the consolidated statements of income during the period they are identified. The impaired digital assets are written down to their fair value at the time of impairment, and this new cost basis is not adjusted upward for subsequent increases in fair value. Gains are only recorded upon the sale of the assets and are presented net of any prior impairment losses for the same digital assets. The gain recognized upon sale is calculated as the difference between the sales price and the carrying value of the digital assets immediately before the sale.
This accounting approach means that Exit proactively monitors the value of its digital assets and recognizes losses promptly if their value declines, but it does not recognize gains until the assets are actually sold. For a prospective franchisee, this indicates that Exit follows a conservative accounting practice regarding digital assets, which can provide a more transparent view of the company's financial health.