RE:RE:Bluejay 2020 Thank you for sharing your professional expertise with us. I actually did have an few accounting questions relating to the most recent earnings and I was wondering if you could help the community out.
Reading quickly through the MD&A, the discount rates for the impairment test of the intangibles have changed from last quarter to this quarter. The old rates were 14.90% for Canadian cash generating units and 8.90% for the American ones (excluding Pappa Murphy's for some reason) in Q1. The new rates are 9.00% and 9.20%, respectively. How is the impairment charge calculated? Does the decrease in the Canadian hurdle rate mean that the company underestimated the impairment of its intangible assets that it recognized during this quarter?
[The rates are listed in the notes to the financial statements on page 24 (https://mtygroup.com/wp-content/uploads/2020/07/MTY-Food-Group-Conso-February-29-2020-FINAL.pdf) and page 18 (https://mtygroup.com/wp-content/uploads/2020/07/MTY-Food-Group_Conso-May-31-2020_FINAL-1.pdf)]
I do believe that you have also stated that the impairment charges "will quite probably be reversed in a few quarters". In my limited understanding, the impairment charges can never be reversed once they have been recognized, unless there is a disposition when capital gains would have to be recognized/taxed. Having said that I have read in other financial statements in the past adjustments for "bargain purchase price" (for example in Constellation Software), but I never quite understood how these were recognised / treated in the books. Can you, please, clarify and help educate us? Thank you.