Several years ago, a company acquired an asset at a cost of $400,000. Last year, the company recognized an impairment loss of $25,000 and properly reduced the asset's book value from $250,000 to $225,000.Using the asset's new base of $225,000, the company calculates depreciation for the current year to be $10,000, bringing the book value down to $215,000. However, the company has also determined that the asset's fair value hasrecovered and is now estimated to be $260,000.How should the company measure the asset on its current balance sheet?O The company should reverse the prior impairment and measure the asset at its fair value prior to the initial impairment of $250,000.O The company should not reverse the impairment and should depreciate the asset by $10,000 to a new book value of $215,000.The company should not reverse the impairment and should not depreciate the asset further, leaving the book value at $225,000.O The company should reverse the prior impairment and measure the asset at its current fair value of $260,000.

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Description: Several years ago, a company acquired an asset at a cost of $400,000. Last year, the company recognized an impairment loss of $25,000 and properly reduced the asset's book value from $250,000 to $225,000.Using the asset's new base of $225,000, the c

Impairment occurs when an operational asset undergoes a permanent loss of benefits. There can be…

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Several years ago, a company acquired an asset at a cost of $400,000. Last year, the company recognized an impairment loss of $25,000 and properly reduced the asset's book value from $250,000 to $225,000. Using the asset's new base of $225,000, the company calculates depreciation for the current year to be $10,000, bringing the book value down to $215,000. However, the company has also determined that the asset's fair value has recovered and is now estimated to be $260,000. How should the company measure the asset on its current balance sheet?

Several years ago, a company acquired an asset at a cost of $400,000. Last year, the company recognized an impairment loss of $25,000 and properly reduced the asset's book value from $250,000 to $225,000. Using the asset's new base of $225,000, the company calculates depreciation for the current year to be $10,000, bringing the book value down to $215,000. However, the company has also determined that the asset's fair value has recovered and is now estimated to be $260,000. How should the company measure the asset on its current balance sheet?

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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Question

Several years ago, a company acquired an asset at a cost of $400,000. Last year, the company recognized an impairment loss of $25,000 and properly reduced the asset's book value from $250,000 to $225,000.
Using the asset's new base of $225,000, the company calculates depreciation for the current year to be $10,000, bringing the book value down to $215,000. However, the company has also determined that the asset's fair value has
recovered and is now estimated to be $260,000.
How should the company measure the asset on its current balance sheet?
O The company should reverse the prior impairment and measure the asset at its fair value prior to the initial impairment of $250,000.
O The company should not reverse the impairment and should depreciate the asset by $10,000 to a new book value of $215,000.
The company should not reverse the impairment and should not depreciate the asset further, leaving the book value at $225,000.
O The company should reverse the prior impairment and measure the asset at its current fair value of $260,000.

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