What does Gold Star assess to estimate expected credit losses?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
dingly, upon settlement, actual results may differ from estimated amounts.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consist of amounts due from customers and are generally unsecured.
The Company establishes allowances for credit losses on accounts receivable. The allowance for credit losses is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable and is based upon historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with specific accounts. The measurement of credit losses and subsequent changes in the allowance for credit losses are recorded in the consolidated statements of income within selling, general, and administrative expenses as the amounts expected to be collected change.
In order to estimate expected credit losses, the Company assesses recent historical experience, current economic conditions, and any reasonable and supportable forecasts to identify risk characteristics that are shared within the financial asset. These risk characteristics are then used to bifurcate the aging method into risk pools. Historical credit loss for each risk pool is then applied to the current period aging in the identified risk pools to determine the needed reserve allowance.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, the company estimates expected credit losses by assessing several factors. These include recent historical experience, current economic conditions, and any reasonable and supportable forecasts to identify shared risk characteristics within the financial assets. These characteristics are then used to divide the aging method into risk pools.
The historical credit loss for each risk pool is applied to the current period aging in the identified risk pools to determine the needed reserve allowance. Gold Star notes that in the absence of current economic conditions or forecasts that may affect future credit losses, recent historical experience provides the best basis for estimating these losses.
Estimating credit losses based on risk characteristics requires significant judgment by Gold Star. This includes assessing current economic conditions and their relevance to the company's financial assets, the estimated life of financial assets, and the level of reliance on historical experience in light of economic conditions. The company reviews and updates its historical risk characteristics, any new risk characteristics that arise, and the estimated life of its financial assets when necessary.