CFA Practice Question

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CFA Practice Question

When a long-term asset is written down due to an impairment of value, which of the following is true?

I. Fixed assets will decrease.
II. Stockholders' equity will decrease.
III. Net income will decrease.
Correct Answer: I, II and III

Impairment will cause a loss to be recognized, which will decrease income and then stockholders' equity. The loss will also cause a write-down of the value of the assets.

User Contributed Comments 7

User Comment
Khadria But in the subsequent years, income will increase because . . . the depreciation cost will be less! ! !
nike but the question asks the year when the asset is written down. don't over-complicate the issue, Khadria.
yonghui yes, the question is good
cong When fair value is not readily available, use pv of future cash flows as a proxy.
Paulvw Good question. First year after an impairment, capitalization event or depreciation change is usually different from the remainder.
johntan1979 Always assume what happens immediately, not what happens in subsequent years.
rjh512 I. is wrong. A long-term asset could refer to an intangibile asset, not only fixed assets. Therefore, if an intangible asset is written down, it would not decrease fixed assets. Should only be 2,3.
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