What does the quantitative assessment involve for Sonesta Simply Suites' goodwill impairment test?
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 quantitative assessment for goodwill impairment involves specific steps to determine if the recorded value of goodwill on the company's balance sheet is accurate. Initially, Sonesta Simply Suites may choose to perform a qualitative assessment of factors to determine if it is more likely than not that the fair value of the goodwill is less than its carrying amount.
If the qualitative assessment suggests that impairment is possible, or if the company chooses to skip the qualitative assessment, a quantitative assessment is performed. This assessment calculates an estimated fair value based on projected future cash flows. This estimated fair value is then compared to the carrying amount of the goodwill, which is the value currently recorded in the company's books.
If the estimated fair value exceeds the carrying amount, no impairment is recognized, meaning the goodwill is considered to be accurately valued. However, if the carrying amount exceeds the estimated fair value, an impairment loss is recognized. The loss is equal to the difference between the carrying amount and the fair value, but it is limited to the total balance of the goodwill. This process ensures that the value of goodwill is not overstated on Sonesta Simply Suites' financial statements, providing a more accurate representation of the company's financial health. No impairment on goodwill was recognized during the years ended December 31, 2024, 2023, and 2022.