How does Pump It Up measure the carrying amount of an intangible asset when evaluating it for impairment?
Pump_It_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
the net assets acquired. The Company amortizes goodwill on a straight-line basis over a 10-year period. Goodwill is reviewed for potential impairment if a triggering event occurs that indicates the Company's fair value may be below its carrying value. When impairment is likely, the Company calculates goodwill impairment as the amount the Company's carrying value including goodwill exceeds its fair value. As of December 31, 2024 and 2023, management believes no triggering events occurred.
Intangible Assets
The Company evaluates identifiable intangible assets not subject to amortization for impairment on an annual basis, or more frequently when events or changes in circumstances indicate that it is more likely than not that an asset is impaired. Such circumstances could include, but are not limited to, a significant decrease in the market value of an asset or a significant adverse change in the extent or manner in which an asset is used or in its physical condition. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets (Continued)
The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds the fair value of the asset.
Source: Item 23 — RECEIPTS (FDD pages 60–225)
What This Means (2025 FDD)
According to Pump It Up's 2025 Franchise Disclosure Document, the company evaluates intangible assets for impairment annually or more frequently if circumstances indicate potential impairment. These circumstances may include a significant decrease in market value or adverse changes in the asset's use or condition. To measure impairment, Pump It Up compares the asset's carrying amount to the estimated undiscounted future cash flows associated with it. If the expected future cash flows are less than the carrying value, an impairment loss is recognized.
The impairment loss is calculated as the difference between the asset's carrying value and its fair value. Pump It Up determines fair value using various valuation techniques, including the discounted value of estimated future cash flows. This evaluation process requires the company to make assumptions about future cash flows over the asset's life, which involves significant judgment. Actual results may differ from these assumptions and estimates.
For a prospective Pump It Up franchisee, this accounting policy is important because it affects the company's reported financial performance and overall financial health. If Pump It Up recognizes significant impairment losses on its intangible assets, it could indicate underlying business challenges or a decline in the value of its brand or franchise contracts. This could impact the franchisor's ability to support its franchisees or invest in future growth. Franchisees should be aware of how the franchisor values and assesses its assets, as it can provide insights into the long-term stability and prospects of the franchise system.