How are property and equipment assets acquired via business combination stated for Monicals Pizza?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company has accounted for its business combination using the purchase method under accounting principles generally accepted in the United States of America. In accordance with ASC 805–Business Combinations, the purchase method requires that assets acquired and liabilities assumed in a business combination be measured at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of the assets and liabilities have been determined by management and are based on significant inputs that are generally not observable in the market (Level 3).
A summary of the valuation methodologies used by management pertaining to assets acquired in connection with the acquisition are as follows:
Inventory: Food and supplies inventory acquired were valued at the retail price (Level 3).
Property and equipment: Property and equipment acquired was valued using the cost approach by utilizing the direct cost method, whereby the fair value of the personal property assets are estimated as the cost to construct in order to estimate a replacement cost. The replacement cost is then depreciated to arrive at fair value (Level 3).
Land: Land acquired was valued using the cost approach by utilizing the direct cost method, whereby the fair value of the land is estimated as the replacement cost (Level 3).
Goodwill: Goodwill is the excess of the purchase price over the fair value of assets acquired and is attributable to the synergies expected to arise from the acquiree.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to Monicals Pizza's 2025 Franchise Disclosure Document, the company accounts for business combinations using the purchase method, in accordance with accounting principles generally accepted in the United States of America. This method requires assets acquired to be measured at fair value.
Specifically, property and equipment acquired in a business combination is valued using the cost approach, utilizing the direct cost method. This means the fair value of the personal property assets is estimated by determining the cost to construct a replacement. This replacement cost is then depreciated to arrive at the fair value.
It is important to note that the fair values of assets and liabilities are determined by Monicals Pizza's management and are based on inputs that are generally not observable in the market (Level 3). This valuation approach relies on internal assessments and may involve a degree of subjectivity. A prospective franchisee should consider this when evaluating the financial statements, as different valuation methods or assumptions could yield different results.