Companies Are Supposed to Write-Down Value of Assets If a Permanent

question 51

Multiple Choice

Companies are supposed to write-down value of assets if a permanent impairment of value or loss of utility occurs. If a company writes down its assets this year the effect on: $$\begin{array} { | l | c | c | } \hline & \text { This year's ROA } & \text { Next year's ROA } \\\hline \text { A) } & \text { Increased } & \text { No change } \\\hline \text { B) } & \text { Decreased } & \text { No change } \\\hline \text { C) } & \text { Decreased } & \text { Decreased } \\\hline \text { D) } & \text { Decreased } & \text { Increased } \\\hline\end{array}$$

• A) Option A
• B) Option B
• C) Option C
• D) Option D

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Definitions:

Direct Method

A technique used in cash flow statements to show actual cash inflows and outflows from operating activities, as opposed to the indirect method.

Accounts Receivable

The funds that a company's customers have yet to pay for products or services they have received but have not settled the bill for.

Sales Revenue

Income received from selling goods and services over a period of time.

Operating Activities

Encompasses the primary revenue-generating activities of an entity, including production, sales, and delivery of the company's products and services.