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3. On January 1, 2015 FranchisingRus purchased a Souper Duper restaurant franchise for $10 million which allows FranchisingRus to operate a Souper Duper restaurant for
3. On January 1, 2015 FranchisingRus purchased a Souper Duper restaurant franchise for $10 million which allows FranchisingRus to operate a Souper Duper restaurant for 10 years, and recorded the franchise fee as an intangible asset. FranchisingRus anticipates annual cash flows on the restaurant of $2.4 million and will amortize the franchise fee using the straight-line method (the franchise has no value at the end of the 10 year term). In 2020 the coronavirus hit. FranchisingRus attempted to keep the restaurant open for carry out meals during the outbreak, but in the end decided that its best option would be to close the restaurant for the duration of the outbreak. It estimates that cash flows in 2020 will be $1 million less than its overall annual estimate, but believes that cash flows in the remaining years of the franchise agreement (2021 through 2024) will be at the level estimated at the start of the franchise agreement. Does the situation described above suggest that FranchisingRus would need to consider recording an impairment loss on the Souper Duper franchise? Why or Why not
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