How are derivative financial instruments initially recognized and subsequently remeasured by Petro Stopping Center?

According to Petro Stopping Center's 2025 Franchise Disclosure Document, the company uses derivative financial instruments to manage exposures to fluctuations in foreign currency exchange rates, interest rates, and commodity prices, as well as for trading purposes. These instruments are initially recognized at fair value on the date the derivative contract is entered into. Subsequently, they are remeasured at fair value.

Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. In cases where quoted prices or observable market data are absent, internal models are used to estimate fair values, particularly for longer-term derivative contracts. These models use inputs such as price curves built from available active market pricing data, including volatility, correlation, and modeled external information. Prices for certain products with limited data are determined using historical and long-term pricing relationships.

The document also notes that judgment is required to determine whether certain contracts, such as those for buying or selling commodities, meet the definition of a derivative. For example, contracts to buy and sell LNG are not considered derivatives because they are not capable of being net settled due to a lack of liquidity in the LNG market. Instead, they are accounted for on an accruals basis. However, Petro Stopping Center fair values the derivative financial instruments used to risk-manage the LNG contracts, which may result in a measurement mismatch under IFRS.