When does Petro Stopping Center recognize a lease liability on its balance sheet?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
stated at fair value less costs to sell and any changes in fair value are recognized in the income statement.
Supplies are valued at the lower of cost on a weighted-average basis and net realizable value.
Leases
Agreements that convey the right to control the use of an identified asset for a period of time in exchange for consideration are accounted for as leases. The right to control is conveyed if the Company has both the right to obtain substantially all of the economic benefits from, and the right to direct the use
Notes to the consolidated financial statements
of, the identified asset throughout the period of use. An asset is identified if it is explicitly or implicitly specified by the agreement and any substitution rights held by the lessor over the asset are not considered substantive.
Agreements that convey the right to control the use of an intangible asset including rights to explore for or use hydrocarbons are not accounted for as leases. See material accounting policy information: intangible assets.
A lease liability is recognized on the balance sheet on the lease commencement date at the present value of future lease payments over the lease term. The discount rate applied is the rate implicit in the lease if readily determinable, otherwise an incremental borrowing rate is used. For the majority of the leases in the Company, there is not sufficient information available to readily determine the rate implicit in the lease, and therefore the incremental
borrowing rate is used. The incremental borrowing rate is determined based on factors such as the Company's cost of borrowing, lessee legal entity credit
risk, currency and lease term. The lease term is the non-cancellable period of a lease together with any periods covered by an extension option that the
Company is reasonably certain to exercise, or periods covered by a termination option that the Company is reasonably certain not to exercise.
Source: Item 23 — RECEIPTS **RECEIPTS (FDD pages 87–131)
What This Means (2025 FDD)
According to Petro Stopping Center's 2025 Franchise Disclosure Document, a lease liability is recognized on the balance sheet on the lease commencement date. This liability is calculated as the present value of future lease payments over the lease term. The discount rate used to determine the present value is the rate implicit in the lease, if it is readily determinable. If the implicit rate is not readily determinable, Petro Stopping Center uses an incremental borrowing rate.
The lease term includes the non-cancellable period of the lease, any periods covered by an extension option that Petro Stopping Center is reasonably certain to exercise, and periods covered by a termination option that Petro Stopping Center is reasonably certain not to exercise. The future lease payments considered in the present value calculation include fixed payments, payments that vary depending on an index or rate, payments due for the reasonably certain exercise of options, and expected residual value guarantee payments. Repayments of principal are presented as financing cash flows, while payments of interest are presented as operating cash flows.
However, if the lease term at the commencement of the agreement is less than 12 months, Petro Stopping Center does not recognize a lease liability and right-of-use asset. Instead, a lease expense is recognized in the income statement on a straight-line basis. If there is a significant event or change in circumstances within the company's control that affects the reasonably certain lease term or changes to the lease payments, the present value of the lease liability is remeasured using the revised term and payments, with the right-of-use asset adjusted by an equivalent amount.