Which of the following is the least likely reason
Which of the following is the least likely reason as to why a firm’s management would increase the value of a capital asset that had been previously written down?
A. Management wants to increase ROE in future periods.
B. The company is approaching the leverage limits of its borrowing agreement.
C. Management is concerned that income for the current year will fall below levels expected by analysts.
参考解答
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2024-11-15 07:28:58
Ans:A.
The increase in an asset’s value would increase depreciation expense and therefore decrease ROE in future periods, not increase it. An asset revaluation that reverses a previous downward revaluation is reported in net income in the period it is revalued. Hence management can use upward revaluations to increase net income (and hence meet the analysts’ expectations). This one-time increase in net income would increase ROE for the current year only.
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