Under what circumstances does Remax perform a two-step quantitative impairment test?
Remax Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company's impairment assessment begins with a qualitative assessment to determine if it is more likely than not that a reporting unit's fair value is less than the carrying amount. The initial qualitative assessment includes comparing the overall financial performance of the reporting units against the planned results as well as other factors which might indicate that the reporting unit's value has declined since the last assessment date. If it is determined in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the standard two-step quantitative impairment test is performed. The impairment test consists of comparing the estimated fair value of each reporting unit with its carrying amount, including goodwill. The fair value of a reporting unit is determined by forecasting results and applying an assumed discount rate to determine fair value as of the test date. If the estimated fair value of a reporting unit exceeds its carrying value, then it is not considered impaired and no further analysis is required. Goodwill impairment exists when the estimated implied fair value of a reporting unit's goodwill is less than its carrying value.
Source: Item 1 — Business and Organization (FDD pages 334–464)
What This Means (2025 FDD)
According to Remax's 2025 Franchise Disclosure Document, the company uses a two-step quantitative impairment test under specific conditions related to the valuation of its reporting units. Remax initially conducts a qualitative assessment to determine if it is more likely than not that a reporting unit's fair value is less than its carrying amount. This initial assessment involves comparing the overall financial performance of the reporting units against planned results, as well as considering other factors that might indicate a decline in the reporting unit's value since the last assessment.
If the qualitative assessment suggests that it is more likely than not that the fair value of a reporting unit is less than its carrying value, Remax then proceeds with the standard two-step quantitative impairment test. This test involves comparing the estimated fair value of each reporting unit with its carrying amount, which includes goodwill. The fair value of a reporting unit is determined by forecasting results and applying an assumed discount rate to determine fair value as of the test date.
If the estimated fair value of a reporting unit exceeds its carrying value, it is not considered impaired, and no further analysis is necessary. However, goodwill impairment is recognized when the estimated implied fair value of a reporting unit's goodwill is less than its carrying value. This process ensures that Remax regularly assesses and accounts for any potential impairment of its assets, providing a transparent view of its financial health.