How does Petro Stopping Center recognize the right-of-use asset on its balance sheet?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
gether 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. The future lease payments included in the present value calculation are any 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 and payments of interest are presented as operating cash flows.
Payments that vary based on factors other than an index or a rate such as usage, sales volumes or revenues are not included in the present value calculation and are recognized in the income statement and presented as operating cash flows. The lease liability is recognized on an amortized cost basis with interest expense recognized in the income statement over the lease term, except for where capitalized as exploration, appraisal or development expenditure.
The right-of-use asset is recognized on the balance sheet as property, plant and equipment at a value equivalent to the initial measurement of the lease liability adjusted for lease prepayments, lease incentives, initial direct costs and any restoration obligations. The right-of-use asset is depreciated typically on a straight-line basis over the lease term. The depreciation charge is recognized in the income statement except for where capitalized as exploration, appraisal or development expenditure. Right-of-use assets are assessed for impairment in line with the accounting policy for impairment of property, plant and equipment, intangible assets and goodwill.
Agreements may include both lease and non-lease components.
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 right-of-use asset is recognized on the balance sheet as property, plant, and equipment. The value is equivalent to the initial measurement of the lease liability, adjusted for lease prepayments, lease incentives, initial direct costs, and any restoration obligations. This means that Petro Stopping Center accounts for its right to use an asset (like a property) similarly to how it accounts for assets it owns outright. The value is based on the lease liability, with certain adjustments.
The right-of-use asset is typically depreciated on a straight-line basis over the lease term. The depreciation charge is recognized in the income statement, unless it is capitalized as exploration, appraisal, or development expenditure. This depreciation reflects the gradual reduction in the asset's value over its useful life, which is the lease term. Petro Stopping Center treats this depreciation like other depreciation expenses, impacting the company's reported income.
Petro Stopping Center assesses right-of-use assets for impairment, following the accounting policy for impairment of property, plant and equipment, intangible assets, and goodwill. This means that if the value of the right-of-use asset declines significantly, Petro Stopping Center will recognize an impairment loss. For leases with a term of less than 12 months at the commencement of the agreement, a lease liability and right-of-use asset are not recognized. Instead, Petro Stopping Center recognizes a lease expense in the income statement on a straight-line basis.
If there is a significant event or change in circumstances within Petro Stopping Center'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. The right-of-use asset is adjusted by an equivalent amount. Modifications to a lease agreement beyond the original terms and conditions are accounted for as a re-measurement of the lease liability with a corresponding adjustment to the right-of-use asset. Any gain or loss on modification is recognized in the income statement. Modifications that increase the scope of the lease at a price commensurate with the stand-alone selling price are accounted for as a separate new lease.