Under what circumstances does Gold Star test long-lived assets for recoverability?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
Long-lived assets to be held and used are tested for recoverability whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are measured based on the fair value of the asset, and long-lived assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell. Long-lived assets were measured for impairment, and no adjustments were deemed necessary during any of the years ended December 31, 2024, 2023 and 2022.
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, the company tests long-lived assets for recoverability whenever certain events or changes in circumstances suggest that the carrying amount of those assets may not be recoverable. This means that if there are indicators that the recorded value of an asset on Gold Star's balance sheet is higher than its actual worth, the company will perform a test to determine if an impairment loss needs to be recognized.
This recoverability test is crucial for ensuring that Gold Star's financial statements accurately reflect the value of its assets. If an asset's value has declined significantly, failing to recognize an impairment loss would overstate the company's assets and equity. For a prospective franchisee, this indicates that Gold Star management is proactive in assessing the value of its assets and will adjust the value of the assets if needed.
The document also states that during the years ended December 31, 2024, 2023 and 2022, long-lived assets were measured for impairment, and no adjustments were deemed necessary. This suggests that, at least in the recent past, the company's long-lived assets have maintained their value and that no significant write-downs have been required.