What is the recoverable amount of a CGU for Petro Stopping Center, and how is it determined?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
the Company's other property, plant and equipment on initial recognition are as follows:
Land improvements 15 to 25 years Buildings 20 to 50 years Refineries 20 to 30 years Pipelines 10 to 50 years Service stations 15 years Office equipment 3 to 10 years Fixtures and fittings 5 to 15 years
The expected useful lives and depreciation method of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives or the depreciation method are accounted for prospectively. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period in which the item is derecognized.
Impairment of property, plant and equipment, intangible assets, goodwill, and equity-accounted entities
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.
The business plans, which are approved on an annual basis by the group's senior management, are the primary source of information for the determination of value in use. They contain forecasts for oil and natural gas production, power generation, refinery throughputs, sales volumes for various types of refined products (e.g. gasoline and lubricants), revenues, costs and capital expenditure. Carbon taxes and costs of emissions allowances are included in estimates of future cash flows, where applicable, based on the regulatory environment in each jurisdiction in which the Company operates. As an initial step in the preparation of these plans, various assumptions regarding market conditions, such as oil prices, natural gas prices, power prices, refining margins, refined product margins and cost inflation rates are set by senior management.
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 recoverable amount of a cash-generating unit (CGU) is the higher of its fair value less costs of disposal and its value in use. This assessment is performed whenever events or changes in circumstances suggest that the carrying amount of an asset or CGU may not be recoverable. These circumstances could include changes in business plans, plans to dispose of assets, changes in discount rates, commodity prices, low plant utilization, physical damage, or revisions of estimated reserves. If the carrying amount of a CGU exceeds its recoverable amount, the CGU is considered impaired and is written down to its recoverable amount.
The determination of whether and by how much an asset, CGU, or group of CGUs containing goodwill is impaired involves management estimates on 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. Alternative groupings of assets or CGUs may result in a different outcome from impairment testing.
For discounted cash flow calculations, future cash flows are adjusted for risks specific to the CGU. Value-in-use calculations are typically discounted using a pre-tax discount rate based upon the cost of funding the Company derived from an established model, adjusted to a pre-tax basis and incorporating a market participant capital structure and country risk premiums. Fair value less costs of disposal discounted cash flow calculations use a post-tax discount rate. Management considers discount rates, oil and natural gas prices and production to be the key sources of estimation uncertainty in determining the recoverable amount of upstream oil and gas assets.