CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

The effect of the recognition of loss due to impairment in the years after the recognition would be to ______
A. have no effect on return on assets or return on equity.
B. decrease the return on equity.
C. increase the return on assets.
Explanation: The assets will be decreased in the years following the recognition, while the income will increase due to the fact that less depreciation is recognized.

User Contributed Comments 5

User Comment
chuong Pay attention to the phase "in the year after the recognition"
Jurrens it would have to say that because you do not know the exact effect on income, so it would be inconclusive if it didn't say "in the year after the recognition"
poomie83 in the current year I would have to say there would be no change to ROA and decrease to ROE.
ROA is unaffected because the impairment will cause an equal decrease in NI and TA
ROE will decrease because NI is lower

Any thoughts...
Vedo NI is not lower in the years AFTER the recognition but higher.
endurance easy to remember: impairment lowers the asset base
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