How does Sonesta Simply Suites evaluate the recoverability of an asset group?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
We test long-lived asset groups, including finite-lived intangible assets, for recoverability when changes in circumstances indicate the carrying value may not be recoverable. For example, when there are material adverse changes in projected revenues or expenses, significant underperformance relative to historical or projected operating results, or significant negative industry or economic trends. We also perform a test for recoverability when management has committed to a plan to sell or otherwise dispose of an asset group. We evaluate recoverability of an asset group by comparing its carrying value to the future net undiscounted cash flows that we expect will be generated by the asset group. If the comparison indicates that the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess of carrying value over the estimated fair value. When we recognize an impairment loss for assets to be held and used, we depreciate the adjusted carrying amount of those assets over their remaining useful life.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites's 2025 Franchise Disclosure Document, the company assesses the recoverability of long-lived asset groups, including finite-lived intangible assets, when circumstances suggest that the carrying value might not be recoverable. These circumstances include significant adverse changes in projected revenues or expenses, substantial underperformance relative to historical or projected operating results, or significant negative industry or economic trends. A recoverability test is also conducted when management commits to a plan to sell or dispose of an asset group.
To evaluate recoverability, Sonesta Simply Suites compares the carrying value of the asset group to the future net undiscounted cash flows expected to be generated by the asset group. If this comparison indicates that the carrying value is not recoverable, the company recognizes an impairment loss. This loss is calculated as the excess of the carrying value over the estimated fair value of the asset group.
When an impairment loss is recognized for assets intended to be held and used, Sonesta Simply Suites depreciates the adjusted carrying amount of those assets over their remaining useful life. This process ensures that the assets are appropriately valued on the company's financial statements, reflecting their true economic worth and preventing overstatement of asset values.