How does Petro Stopping Center group individual assets for impairment assessment purposes?
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 groups individual assets into cash-generating units (CGUs) for impairment assessment. This grouping occurs at the lowest level where identifiable cash inflows are largely independent of other asset groups.
The purpose of this grouping strategy is to accurately assess whether the carrying amount of an asset or CGU is recoverable. Petro Stopping Center considers various factors that might indicate impairment, such as changes in business plans, intentions to dispose of assets, changes in discount rates, commodity prices, low plant utilization, physical damage, or revisions of estimated reserves and development costs for oil and gas assets.
The recoverable amount of a CGU is determined by the higher of its fair value less costs of disposal and its value in use. If the carrying amount of a CGU exceeds its recoverable amount, the CGU is deemed impaired and is written down to its recoverable amount. This process ensures that the assets of Petro Stopping Center are appropriately valued on its balance sheet, reflecting their true economic worth.
Furthermore, determining whether an asset, CGU, or group of CGUs containing goodwill is impaired involves management estimates on uncertain matters, including 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. Alternative groupings of assets or CGUs may result in a different outcome from impairment testing.