schweser book 1, pg 21, Q 59 (exam 1 AM): A company takes 10million of impairment charges on depreciable asset in 2003. most likely effect will be to A: increase reported income in 2004 B:decrease netincome in 2003 C increase ROE and operating cashflow in 2004. My question is: why is B wrong choice. Ans: A
You will have lower net income in 2003 when it is written down. You will have higher net income in 2004 as you now have a lower depreciation expense.
@sbmarti - not sure what you mean - - isnt that option B? im racking my brains trying to figure this one out too - looks misworded to me, unless they are talking about income for tax reporting purposes. ??
got it. it seems i am fatigued to follow until some one speaks out. thx sbmarti2
yeah, I’m flipping pages and can’t make this one out…
I didn’t read the wrong answers, sorry. I checked the book though, and for answer B, you left out taxes payable, so B roughly reads: 2003 net income and taxes payable decrease Taxes payable will not decrease, because it would only affect taxes if the asset is sold written off completely.
makes sense now - thanks sbmarti2