What are Level 1 inputs for determining the fair value of Exit's 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.
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, Level 1 inputs for determining the fair value of the company's digital assets are based on quoted prices on the active exchange(s) that Exit has determined is the principal market for such assets. These quoted prices are unadjusted and are for identical assets or liabilities that Exit can access at the measurement date.
Exit accounts for digital assets as indefinite-lived intangible assets, initially recorded at cost. Subsequently, these assets are remeasured on the consolidated balance sheets at cost, net of any impairment losses since acquisition. At year-end, Exit analyzes whether events or changes in circumstances, especially decreases in quoted prices on active exchanges, indicate potential impairment of these digital assets.
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 carrying value of a digital asset exceeds its fair value, an impairment loss is recognized, and the asset is written down to its fair value. This new cost basis is not adjusted upward for subsequent increases in fair value. Gains are recorded only upon sale, net of any impairment losses for the same digital assets held. This approach ensures that Exit's financial statements accurately reflect the value of its digital assets, considering market fluctuations and potential impairments.