What factors might indicate to Sonesta Simply Suites that a goodwill impairment test is needed?
Sonesta_Simply_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
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.
Goodwill
Goodwill is not amortized, and we test goodwill for impairment each year or more frequently should facts and circumstances indicate that it is more likely than not that the fair value is less than the carrying amount. As part of the impairment test, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value, including goodwill, is less than its carrying amount, or if we elect to bypass the qualitative assessment, we would then proceed with a quantitative assessment. The quantitative assessment involves calculating an estimated fair value based on projected future cash flows, and comparing the estimated fair value to the carrying amount, including goodwill. If the estimated fair value exceeds carrying value, including goodwill, no impairment is recognized. However, if the carrying amount, including
goodwill, exceeds fair value, an impairment loss is recognized in an amount equal to the excess, limited to the total goodwill balance.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 79)
What This Means (2025 FDD)
According to Sonesta Simply Suites' 2025 Franchise Disclosure Document, the brand assesses goodwill for impairment annually or more frequently if circumstances suggest the fair value of the goodwill is less than its carrying amount.
As part of the impairment test, Sonesta Simply Suites may choose to first perform a qualitative assessment. If this assessment indicates that it is more likely than not that the fair value, including goodwill, is less than its carrying amount, or if the company chooses to skip the qualitative assessment, a quantitative assessment is then performed. The quantitative assessment involves calculating an estimated fair value based on projected future cash flows and comparing this to the carrying amount, including goodwill.
If the estimated fair value exceeds the carrying value, including goodwill, no impairment is recognized. However, if the carrying amount, including goodwill, exceeds the fair value, an impairment loss is recognized. The loss is equal to the excess, but it's limited to the total goodwill balance. No impairment on goodwill was recognized for the years ended December 31, 2024, 2023, and 2022.