If an Investment Accounted for Using the Equity Method Suffers

question 5

Multiple Choice

If an investment accounted for using the equity method suffers an impairment loss and the value in use of the investment subsequently recovers, what accounting entry should be made?

• A) It may be revalued to fair value with the revaluation gain going to other comprehensive income, even if the recorded gain will exceed the original impairment loss.
• B) It may be written up in value but not more than the amount of the impairment loss that was recorded at the time of impairment.
• C) It may be revalued to fair value with the revaluation gain going to net income, even if the recorded gain will exceed the original impairment loss.
• D) None; once an investment has been written down, it cannot subsequently be written up.

---

Definitions:

Units Of Good

The quantifiable measure of a product or service that is produced by a company.

Utility Function

An expression that quantitatively describes how consumer preferences are ordered, indicating the level of happiness or fulfillment they derive from various goods or services.

Indifference Curves

Graphical representations used in microeconomics to illustrate different combinations of two goods among which a consumer is indifferent in terms of utility or satisfaction.

Preferences Convex

A characteristic of consumer choices where combinations of goods are preferred over extreme options, illustrating a desire for variety.