Under what circumstances does Surestay Hotel By Best Western test goodwill for impairment?
Surestay_Hotel_By_Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
on (see notes 7, 16, and 17).
(k) Goodwill and Other Intangible Assets
Goodwill arises from business combinations and represents the excess of the cost of an acquired entity over the net fair value amounts that were assigned to the identifiable assets acquired and the liabilities assumed. Goodwill is amortized on a straight-line basis over a ten-year useful life and is tested for impairment if circumstances indicate that the goodwill carrying value may exceed its fair value. Goodwill is included in other assets, net in the Consolidated Statements of Financial Position.
Other intangible assets include acquired customers, developed technologies, and trademarks and trade names resulting from business acquisitions. Other intangible assets are valued based on their acquisition date fair values and, other than trademarks and trade names which are indefinite-lived, are amortized using the straight-line method over their estimated useful lives, ranging from 7.5 years to 10 years. Other intangible assets are included in other assets, net in the Consolidated Statements of Financial Position.
The Company evaluates the potential impairment of goodwill and other intangible assets annually. In evaluating these assets for impairment, the Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the intangible assets is less than its carrying amount. If the conclusion is that the fair value of the assets is not more likely than not less than its carrying value, then no further
November 30, 2024
testing is required. If the conclusion is that the fair value of the assets is more likely than not less than its carrying value, then a quantitative impairment test is performed. For intangible assets, if the carrying value is greater than the fair value of the assets, an impairment charge is recognized for this excess. The Company may elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and other intangible assets. The Company determines the fair value of its reporting units and intangible assets using income and market methods.
Goodwill has been allocated to two reporting units: (i) WorldHotels, and (ii) AutoClerk.
Source: Item 23 — Receipts (FDD pages 88–286)
What This Means (2025 FDD)
According to Surestay Hotel By Best Western's 2025 Franchise Disclosure Document, goodwill, which arises from business combinations, is tested for impairment if circumstances indicate that the goodwill carrying value may exceed its fair value. The company evaluates the potential impairment of goodwill annually and may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit or the intangible assets is less than its carrying amount.
If the conclusion of the qualitative assessment is that the fair value of the assets is not more likely than not less than its carrying value, then no further testing is required. However, if the fair value of the assets is more likely than not less than its carrying value, then a quantitative impairment test is performed. The company may also elect to forgo the qualitative assessment and move directly to the quantitative impairment tests for goodwill and other intangible assets.
For intangible assets, if the carrying value is greater than the fair value of the assets, an impairment charge is recognized for this excess. The company determines the fair value of its reporting units and intangible assets using income and market methods. Goodwill has been allocated to two reporting units: WorldHotels and AutoClerk. For example, in both 2024 and 2023, a quantitative impairment analysis for the WorldHotels reporting unit was performed, and it was determined that the fair value exceeded the carrying value, resulting in no impairment recorded. During the same period, a qualitative impairment analysis for the AutoClerk reporting unit concluded that the fair value of the reporting unit was likely greater than its carrying amount.