How does Aplus value its fuel inventories, and what costs are included in the cost of fuel sold?
Aplus Franchise · 2024 FDDAnswer from 2024 FDD Document
Fuel inventories are stated at the lower of cost or market using the last-in-first-out ("LIFO") method. Under this methodology, the cost of fuel sold consists of actual acquisition costs, which includes transportation and storage costs. Such costs are adjusted to reflect increases or decreases in inventory quantities which are valued based on changes in LIFO inventory layers.
As of December 31, 2023 and 2022, the Partnership's fuel inventory balance included lower of cost or market reserves of $230 million and $116 million, respectively.
Source: Item 22 — CONTRACTS (FDD page 68)
What This Means (2024 FDD)
According to Aplus's 2024 Franchise Disclosure Document, fuel inventories are valued at the lower of cost or market, utilizing the last-in-first-out (LIFO) method. This means that the most recently acquired fuel is assumed to be sold first for accounting purposes. As of December 31, 2023 and 2022, Aplus's fuel inventory balance included lower of cost or market reserves of $230 million and $116 million, respectively.
The cost of fuel sold includes actual acquisition costs, encompassing transportation and storage expenses. These costs are adjusted to reflect any increases or decreases in inventory quantities, which are valued based on changes in LIFO inventory layers. This valuation method affects how Aplus reports its financial performance, particularly concerning the cost of sales.
For a prospective Aplus franchisee, understanding these accounting practices is crucial because it impacts the reported profitability and inventory valuation. The LIFO method can have tax implications and may affect the perceived value of the fuel inventory. Additionally, the inclusion of transportation and storage costs in the cost of fuel sold provides a more comprehensive view of the expenses associated with fuel operations. Franchisees should be aware of how these accounting methods can influence their financial statements and overall business performance.