Reference no: EM132697637

Canada Foods is Canada's largest food processor. The company produces fresh and processed pork, poultry, and seafood for retailers and wholesales, along with pet and livestock foods. Its bakery groups produce fresh and frozen baked goods, fresh pasta, and pasta sauces. Canadian Food also has operations in the USA, Asia, and Europe.

• Early in the 1990's, labour disputes occurred at three of Canadian's meat products plants - one of which was a fresh pork facility. Prior to the labour dispute, the fresh pork facility in Any Town, Ontario, processed about 32,000 hogs per week on a single shift. After the dispute was over, the facility processed only about 18,000 hogs per week at first. The hog supply was gradually increased over the rest of the year until 44,000 hogs per week were processed on each shift.
• The dispute had a negative impact on Canadian's financial results. Canadian paid $37 million of labour dispute costs and payments to employees when the strike at the Any Town fresh port facility was settled.
• On a more positive note, Canadian announced a $40 million investment that would be made over the next few weeks to add a second shift capacity to the facility. When this is complete, Canadian anticipates that it will be able to process 85,000 hogs per week on a double shift.

Problem a) Identify and discuss the advantages and disadvantages of each amortization method for Canadian Foods' pork facilities (Straight Line, Double Declining, and Units of Activity). Which method would you recommend that Canadian use to amortize the capital assets associated with its Any Town plant? Explain why you chose the method you did.

Problem b) How should Canadian account for the $37 million of labour dispute costs. Determine which financial statement this amount should be reported on and where it should appear in the statement.

Problem c) How should Canadian account for the $40 million investment it will make to produce a world-class prepared meats facility? Discuss whether these costs should be treated as operating expenditures or capital expenditures.