For several years, a number of Food Lion, Inc. , grocery stores were unprofitable. The companyclosed some of these locations. It was apparent that the company would not be able to recover thecost of the assets associated with the closed stores. Thus, the current value of these impaired assetshad to be written down.A note in the financial statements indicated that the company tests assets for impairment when circumstances indicate that an impairment may exist. For impairment testing, each store is con-sidered 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.
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 an impairment may exist. For impairment testing, each store is con-
sidered 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.
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