How are Exit's digital assets subsequently remeasured on the consolidated balance sheets?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
that indicates the debtor is facing significant financial difficulty and there is no possibility of recovery. If any recoveries are made from any accounts previously written off, they will be recognized in income or an offset to credit loss expense in the year of recovery, in accordance with the Company's accounting policy. The total amount of provision for credit losses related to trade accounts receivable and notes receivable were $351,755, $1,304,737, and $382,936 for the years ending December 31, 2024, 2023 and 2022, respectively.
Property and Equipment:
Property and equipment with an acquisition cost greater than $1,500 and an estimated useful life of greater than one year are recorded at cost. Expenditures for maintenance and repairs are charged against income when incurred. Amortization and depreciation of equipment and software is provided on the declining balance basis using the following annual rates:
| Electronic equipment | 30% |
|---|---|
| Furniture and fixtures | 20% |
| Outdoor sign | 25% |
| Computer Software | 30%-100% |
| Vehicles | 30% |
| Building | 4% |
Leasehold improvements are amortized on a straight-line basis over the lesser of the lease term or the life of the asset.
Digital Assets:
The Company accounts for digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles - Goodwill and Other. The company has ownership of and control over the digital assets and uses third-party custodial services to secure it. The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheets at cost, net of any impairment losses incurred since acquisition.
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.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, digital assets are initially recorded at cost and subsequently remeasured on the consolidated balance sheets at cost, net of any impairment losses incurred since acquisition. This means that after Exit acquires digital assets, their value on the balance sheet is adjusted to reflect their original cost, minus any reductions in value due to impairment.
The fair value of Exit's digital assets is determined on a nonrecurring basis using Level 1 inputs, which are quoted prices in active markets for identical assets. At year-end, Exit analyzes whether events or changes in circumstances, such as decreases in quoted prices, indicate that the digital assets are impaired. If the carrying value of a digital asset exceeds its fair value, an impairment loss is recognized for the difference between the carrying value and the fair value.
Impairment losses are shown on the consolidated statements of income in 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 any subsequent increase in fair value. Gains are not recorded until the assets are sold, at which point they are presented net of any impairment losses for the same digital assets held. The gain recognized upon sale is the difference between the sales price and the carrying value of the digital assets immediately prior to the sale.
For a prospective franchisee, this accounting treatment of digital assets means that Exit's financial statements will reflect the current market value of its digital assets, with any declines in value recognized as losses. However, increases in value are only recognized upon the actual sale of the assets. This approach provides a more conservative view of the company's financial position, as it does not overstate the value of digital assets based on unrealized gains.