Question

In: Finance

Impairment of a tangible asset results in a decrease in all ofthe following except:Group...

Impairment of a tangible asset results in a decrease in all of the following except:

Group of answer choices

A) the debt-to-equity ratio.

B) net income.

C) future depreciation expense.

Solutions

Expert Solution

Impairment of an asset will result in a decrease in the asset's book value and will eventually reduce the depreciation for the subsequent years as the depreciation will be recalculated based on the revised value of an asset after the impairment. Therefore future depreciation expenses will decrease.

Moreover, the impairment amount will be debited to the profit and loss account and thus will reduce the net income.

But the debt-equity ratio will not be affected by the asset value as it only considers the debt and equity amount of the company. Therefore debt-equity ratio will not decrease as it will not be affected.

Therefore the correct option is A

jeff jeffy answered 2 years ago
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