How does Exit determine the fair value of its digital assets?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
The fair value of the Company's digital assets is determined on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement, based on quoted prices on the active exchange(s) that the Company has determined is the principal market for such assets (Level 1 inputs). 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 determines the fair value of its digital assets on a nonrecurring basis, following ASC 820, Fair Value Measurement. This valuation relies on quoted prices from active exchanges, which Exit identifies as the primary market for these assets, aligning with Level 1 inputs. At year-end, Exit analyzes whether events or changes in circumstances, especially decreases in quoted prices on active exchanges, indicate potential impairment of the digital assets.
To assess impairment, Exit considers the market price of a single unit of digital asset quoted on the active exchange at year-end. If the current carrying value of a digital asset exceeds this fair value, an impairment loss is recognized. The loss is equivalent to 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 the impairment is identified.
Notably, once digital assets are written down to their fair value due to impairment, this new cost basis is not adjusted upward, even if the fair value subsequently increases. Gains are only recorded upon the sale of the assets, net of any prior impairment losses. The gain is calculated as the difference between the sales price and the carrying value of the digital assets immediately before the sale. This approach ensures a conservative valuation of digital assets, reflecting potential losses promptly while deferring gain recognition until realized through a sale.