Good Food Company has sued Tasty Food Company for illegally producing and selling one of its patented products. The lawsuit is for $5,000,000 (a substantial/material amount to both companies).
On December 31, 2021 (fiscal year-end), legal opinion is that it is likely that Good Food will win the lawsuit and be awarded the full $5,000,000 in damages by the court.
Good Food and Tasty Food are both public companies.
Instructions:
a) Briefly explain how Good Food would account for the lawsuit on December 31, 2021. (2 Marks)
b) Briefly explain how Tasty Food would account for the lawsuit on December 31, 2021. (3 marks)
PART B - ANALYSIS/SHORT ANSWER (20 Marks)
1. The below financial ratios (for a recent year) are for two competing companies in the same industry.
Company A Company B
Current Ratio 1.20 0.83
Quick Ratio 1.04 0.46
Receivables Turnover 2.50 29.3
Asset Turnover 0.62 0.74
Return on Assets 0.01 (0.03)
Instructions:
a) Briefly comment on the implications of each of the above ratios for Company A and B. (8 Marks)
b) List two (2) other comparisons that you would like to make before reaching conclusions on the above
ratio data for Company A and B. (2 Marks)
2. Identify two (2) conditions that must be present for goodwill to be recorded as an intangible
asset of a business. (4 Marks)
3. Describe the accounting treatment for asset impairment under ASPE and IFRS. (6 Marks)