Margo Wicks is a staff accountant with Food to Go Ltd. (FGL). FGL operates a variety...

  

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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 2010, and by 2013 it had 12 trucks providing sandwiches and other hand-held lunch items. In 2015 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's corporate controller to perform an impairment test on the ice cream trucks as at December 31, 2020. FGL reports under IFRS. Margo has obtained the following information: Appendix: Email regarding asset details Subject: Ice cream trucks Margo Wicks Corporate Controller TO: FROM: Hi Margo, Here's the information you requested for your analysis of the ice cream trucks. We purchased the trucks in January of 2015 for $70,000 each. We expected to get 10 years out of them, so we have been amortizing 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 five 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, Corporate Controller S - 3 1 ! 1 2 Carrying amount 3 Cost A Item 4 Accumulated amortization 5 6 Fair market value less costs of disposal 7 Price 8 Less: Selling costs 9 10 Value in use 11 Present value of future cash flows B Amount 0 0 Select your answer 1 1 the asset's cost and accumulated amortization should each be reduced by the amount of the impairment loss. 2 the impairment loss is recognized in net income, and the carrying value of the asset is reduced. 3 the impairment loss is recognized in net income, and the accumulated amortization account is debited. the asset is classified as a discontinued operation, and income and expenses 4 related to the asset are disclosed separately on the face of the statement of operations. the asset is classified as a discontinued operation, but income and expenses 5 related to the asset do not need to be disclosed separately on the face of the statement of operations. 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 2010, and by 2013 it had 12 trucks providing sandwiches and other hand-held lunch items. In 2015 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's corporate controller to perform an impairment test on the ice cream trucks as at December 31, 2020. FGL reports under IFRS. Margo has obtained the following information: Appendix: Email regarding asset details Subject: Ice cream trucks Margo Wicks Corporate Controller TO: FROM: Hi Margo, Here's the information you requested for your analysis of the ice cream trucks. We purchased the trucks in January of 2015 for $70,000 each. We expected to get 10 years out of them, so we have been amortizing 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 five 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, Corporate Controller S - 3 1 ! 1 2 Carrying amount 3 Cost A Item 4 Accumulated amortization 5 6 Fair market value less costs of disposal 7 Price 8 Less: Selling costs 9 10 Value in use 11 Present value of future cash flows B Amount 0 0 Select your answer 1 1 the asset's cost and accumulated amortization should each be reduced by the amount of the impairment loss. 2 the impairment loss is recognized in net income, and the carrying value of the asset is reduced. 3 the impairment loss is recognized in net income, and the accumulated amortization account is debited. the asset is classified as a discontinued operation, and income and expenses 4 related to the asset are disclosed separately on the face of the statement of operations. the asset is classified as a discontinued operation, but income and expenses 5 related to the asset do not need to be disclosed separately on the face of the statement of operations.

Answer rating: 100% (QA)

Based on the information provided Margo needs to perform an impairment test on the ice cream trucks as of December 31 2020 The impairment test compares the carrying amount of the asset the trucks with ... View the full answer