For several years, a number of Food Lion, Inc. , grocery stores were unprofitable. The company closed
Question:
For several years, a number of Food Lion, Inc. , grocery stores were unprofitable. The company closed some of these locations. It was apparent that the company would not be able to recover the cost of the assets associated with the closed stores. Thus, the current value of these impaired assets had to be written down.
A note in the financial statements indicated that the company tests assets for impairment when circumstances indicate that impairment may exist. For impairment testing, each store is considered a cash-generating unit. Stores with potential impairments are tested by comparing their carrying value with their recoverable amounts.
a. Explain why Food Lion wrote down the current carrying value of its unprofitable stores.
b. Explain why the write-down of impaired assets is considered a noncash expense.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello