expert INTERMEDIATE FINANCIAL REPORTING $1$

UNIT $4-$ TASK$-$BASED SIMULATION #$2$

Simulation $(20$ minutes$)$

Margo Wicks is a staff accountant with Food to Go Ltd$.($FGL$).$ FGL operates a variety of food trucks in a large Canadian city. The company started with just one food truck in Year $1,$ and by Year $3$ it had $12$ food trucks providing sandwiches and other hand$-$held lunch items.

In Year $5$ FGL expanded into ice cream trucks and acquired five trucks to circulate in

local area parks. The expectation was that the ice cream trucks would be able to

operate from early April to late November. However, a series of longer$-$than$-$normal winters recently has shortened the operating window from mid$-$May to the end of October. In addition, sales have been lower than expected.

As part of the year$-$end financial reporting process, Margo has been asked by FGL$\text{'}$s corporate controller, Chima Okeri, to perform an impairment test on the ice cream trucks as at December $31,$ Year $10.$ FGL reports under IFRS.

Margo has obtained the following information:

Appendix: Email regarding asset details

Complete the tasks in the Excel Task file. Appendix: Email regarding asset details

Subject: Ice cream trucks

TO: $,$ Margo Wicks. Staff Accountant

FROM:

Chima Okeri, Corporate Controller

Hi Margo,

Here's the information you requested for your analysis of the ice cream trucks.

We purchased the trucks in January of Year $5$ for $$70,000$ each.

We expected to get $10$ years out of them, so we have been depreciating them on a

straight$-$line basis with no residual value.

Just recently, we were approached by a bricks and mortar restaurateur who is

looking to add "mobile" to his restaurant lineup. He has offered us $$150,000$ for all

f Task $1$

To determine if an impairment loss must be recognized for the fleet of ice cream trucks, the carrying amount and recoverable amount related to these trucks need to be assessed. To assist Chima with this analysis, Margot must calculate the amounts requested using the information in the Appendix.

Instructions:

In Column B$,$ enter the amounts for the item described in Column A$.$ Round all amounts to the nearest dollar. If there is no value for a cell, enter $"0."$ Enter all numbers as positive numbers.

$\backslash$table$[[,$A$,$B$],[1,$Item,Amount$],[2,$Carrying amount:,$],[3,$Cost,$],[4,$Less: Accumulated depreciation,$],[5,,],[6,$Fair value less cost of disposal:,$],[7,$Fair value,$],[8,$Less: Cost of disposal,$],[9,,],[10,$Value in use:,$],[11,$Present value of future cash flows,$]]$ Task $2$

Chima, the controller, has been asked to prepare a memo to Satpal Chopra, the

CEO explaining the financial statement impact when the recoverable amount of

an asset is less than its carrying amount. Prepare the portion of the memo to

assist Chima with this request.

Instructions:

The next paragraph ends in a sentence that is bolded. You must decide how to

best complete the sentence: you may leave the bolded comment in place

$($choose option $1)$ or replace it with an alternative comment.

Draft memo to: Satpal Chopra, CEO

From: Chima Okeri, Controller

RE: Impairment losses

To determine whether an asset is impaired, you must compare the asset's

carrying amount with its recoverable amount. If the recoverable amount is

less than its carrying value, the asset is impaired. To reflect the change in

the asset's cost and accumulated depreciation should each be reduced

by the amount of the impairment loss.ive of the trucks, but we will be responsible for all of the inspection costs $($estimated

to be $$5,000),$ the legal costs $($estimated to be $$2,500),$ and the transfer cost

$($estimated to be $$500)$ for all trucks.

We estimated that operating cash flows for each of the next five years for all trucks

will be $$55,000,$ at which point the trucks could be sold for $$10,000$ each.

The current market rate that reflects the risk of this asset has been estimated to be

$7\%.$

I think that this covers everything $-$ please let me know if there is anything else that

you require.

Sincerely,

Chima