Importance Of Fair Value Measurement: Hilton Worldwide

1678 Words7 Pages
Accounting for Corporate Accountability
Assignment 1
Student ID : 100797577

Fair Value Measurement
Fair value measurement is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants on the measurement date. Another important criteria in fair value measurement is that all the measurement are market-based but not entity-based and, the measurement requires to take market conditions to account, especially the principal market and it is basically measured using the assumptions that would be used by market participants in order to price an asset or liability. However, under some circumstances, principal markets are not always available.
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They have to make sure that the sale of the asset to be happened likely within and year and also to assure to have no withdrawing. Another asset that relies on numerous assumptions is their brand. Apparently, evaluating fair value for the brand not a simple and straight forward task to be carried out . The consolidated balance sheet shows that the fair value of the brand is $4963 million as of the end of year 2014 and it was a decreasing result if compared to the figure in end of 2013 which is $5013 million. There are many hotels being operated and franchised under the brand portfolio of Hilton Worldwide that includes Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Embassy Suite Hotels, Hilton Garden Inn, Hampton Inn & Suites, Homewood Suites by Hilton, Home2 Suites by Hilton and some timeshare properties under the brand name “Hilton Grand Vacations”. Except for Home2 Suites by Hilton, fair value for the rest of the brands are evaluated by a method known as the relief from royalty approach (a hypothetical royalty typically calculated as a percentage of forecasted revenue that the owner would otherwise be willing to pay…show more content…
According to the evaluation, even though it is very unlikely that fair value will be lower than the carrying value, if it happens that fair value goes lesser than carrying value, the excess of carrying value over the fair value will be considered to put into the consolidated balance sheet. Another critical non-current asset that needed to be taken into account is the intangible assets with finite useful lives, that basically consists of management agreement, franchise contracts, leases, certain proprietary technologies and their guest loyalty program (Hilton HHonors). Hilton Worldwide considered management and franchise contracts acquisition costs as finite-lived intangible assets and the useful lives of these assets are gradually written off (amortized) by using straight line method along their estimated useful lives. Based on the reviews carried out by the company, the carrying amount of those intangible results are likely to be in recoverable and in such case, the company has to set them as impairment loss over the fair value in consolidated balance

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