Question

A government experienced significant loss of certain roadways and bridges as a result of major flooding. Which of the following estimation approaches would be most useful in estimating the amount of asset impairment that has occurred?

1) Deflated depreciated replacement cost approach.
2) Service units approach.
3) Restorative cost approach.
4) Each of these three approaches would be equally useful.

Answer 1

The most useful estimation approach for estimating the amount of asset impairment caused by major flooding in the government's roadways and bridges would be the restorative cost approach.

Step-by-step explanation:

The most useful estimation approach for estimating the amount of asset impairment caused by major flooding in the government's roadways and bridges would be the restorative cost approach. This approach focuses on calculating the cost of repairing or restoring the damaged assets to their pre-flood condition. It takes into account the specific costs of materials, labor, and other expenses required for the restoration process.

The deflated depreciated replacement cost approach is not as suitable in this scenario because it focuses on estimating the current value of replacing the assets, adjusted for depreciation. The service units approach is also not ideal because it estimates the value based on the number of units of service provided by the assets, which may not be directly applicable in assessing impairment caused by flooding.

Therefore, the restorative cost approach is the most appropriate for estimating asset impairment resulting from major flooding in this government's case.