How does Petro Stopping Center assess assets for impairment?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company assesses assets or groups of assets, called cash-generating units (CGUs), for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable; for example, changes in the Company's business plans, plans to dispose rather than retain assets, changes in the Company's assumptions about discount rates, commodity prices, low plant utilization, evidence of physical damage or, for oil and gas assets, significant downward revisions of estimated reserves or increases in estimated future development expenditure or decommissioning costs. If any such indication of impairment exists, the Company makes an estimate of the asset's or CGU's recoverable amount. Individual assets are grouped into CGUs for impairment assessment purposes at the lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other groups of assets. A CGU's recoverable amount is the higher of its fair value less costs of disposal and its value in use. If it is probable that the value of the CGU will be primarily recovered through a disposal transaction, the expected disposal proceeds are considered in determining the recoverable amount. Where the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down to its recoverable amount.
Source: Item 23 — RECEIPTS **RECEIPTS (FDD pages 87–131)
What This Means (2025 FDD)
According to Petro Stopping Center's 2025 Franchise Disclosure Document, the company assesses assets or groups of assets, known as cash-generating units (CGUs), for impairment when events or changes in circumstances suggest that the carrying amount of an asset or CGU may not be recoverable. Examples of such indicators include changes in business plans, plans to dispose of assets, changes in assumptions about discount rates, commodity prices, low plant utilization, physical damage, or significant downward revisions of estimated reserves or increases in estimated future development expenditure or decommissioning costs for oil and gas assets. If any of these indicators are present, Petro Stopping Center estimates the asset's or CGU's recoverable amount.
For impairment assessment, individual assets are grouped into CGUs at the lowest level where there are identifiable cash inflows that are largely independent of other groups of assets. The recoverable amount of a CGU is the higher of its fair value less costs of disposal and its value in use. If it is probable that the value of the CGU will be primarily recovered through a disposal transaction, the expected disposal proceeds are considered when determining the recoverable amount. If the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down to its recoverable amount.
This process involves several management estimates regarding uncertain matters such as the effects of inflation and deflation on operating expenses, discount rates, capital expenditure, carbon pricing, production profiles, reserves and resources, and future commodity prices. Judgment is required when determining the appropriate grouping of assets into a CGU or the appropriate grouping of CGUs for impairment testing purposes, as alternative groupings may yield different outcomes. The recoverable amount of an asset is the higher of its value in use and its fair value less costs of disposal, with fair value potentially based on expected sales proceeds or recent market transaction data. Details of impairment charges and reversals are provided in Note 3, while details on the carrying amounts of assets are shown in Note 8, Note 10, and Note 11 of the FDD.