How does Circle K test property and equipment for impairment?
Circle_K Franchise · 2025 FDDAnswer from 2025 FDD Document
Property and equipment are tested for impairment should events or circumstances indicate that their book value may not be recoverable, as measured by comparing their net book value to the estimated undiscounted future cash flows generated by their use and eventual disposal. Should the carrying amount of long-lived assets exceed their fair value, an impairment loss in the amount of the excess would be recognized.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 99–100)
What This Means (2025 FDD)
According to Circle K's 2025 Franchise Disclosure Document, the company tests its property and equipment for impairment when events or circumstances suggest that the book value of these assets may not be recoverable. This test involves comparing the net book value of the assets to the estimated undiscounted future cash flows expected to be generated from their use and eventual disposal.
If the carrying amount of the long-lived assets exceeds their fair value, Circle K would recognize an impairment loss. The loss is equivalent to the amount by which the carrying amount exceeds the fair value. This process ensures that the value of the assets reported on Circle K's financial statements accurately reflects their recoverable value.
For a prospective franchisee, this means that Circle K regularly assesses whether the value of its assets, such as equipment and buildings, is declining. If the expected future cash flows from these assets are less than their recorded value, Circle K will write down the asset's value to reflect this impairment. This accounting practice provides a more realistic view of the company's financial health.