What does Exit consider when determining if an impairment of digital assets has occurred?
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.
A three-tier hierarchy categorizes the inputs as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the company assesses digital asset impairment by analyzing events or changes in circumstances, focusing primarily on decreases in quoted prices on active exchanges. 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, as determined by the market price, Exit recognizes an impairment loss. The loss is equivalent to the difference between the asset's carrying value and the determined price. These impairment losses are then reported on the consolidated statements of income during the period the impairment is identified.
It's important to note that once a digital asset is impaired and written down to its fair value, this new cost basis will not be adjusted upward, even if the fair value subsequently increases. Gains are only recorded when the digital assets are sold, and these gains are presented net of any prior impairment losses for the same assets. The gain recognized upon sale is calculated by finding the difference between the sales price and the carrying value of the digital assets immediately before the sale.
Exit uses a three-tier hierarchy to categorize the inputs for determining fair value, with Level 1 being quoted prices in active markets for identical assets that the company can access at the measurement date. This approach ensures that Exit's valuation of digital assets is based on readily available market data, reflecting a transparent and standardized method for assessing impairment.