Reference no: EM132596301

Question - The Write-Down of Impaired Assets

For several years, a number of Prestland Company's grocery stores were unprofitable, leading to a decision to close several of these locations where it was apparent that the company would not be able to recover the cost of the assets associated with those stores.

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 considered a cash-generating unit. Stores with potential impairments are tested by comparing their carrying value with their recoverable amounts.

1. Explain why Prestland wrote down the current carrying value of its unprofitable stores.

2. Explain why the write-down of impaired assets is considered a noncash expense.