Question

Recently a tornado hit Hutchinson, Kansas. The first responder’s response time was hindered when the fire station was severely damaged.  The fire station was 2 years old and had an original expected lifespan of 30 years. The original cost of the fire station was $15,000,000 and the station was expected to have no value after it applied straight-line depreciation over its lifespan. It was determined that Hutchinson would pay $5,000,000 to restore the station. Recent federal data shows building construction costs have grown at 5% annually over the past two years.

What is the proper accounting for this impairment?

Answer 1