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Reporting and Repairing Damages

Recent river flooding damaged a part of the Town of Brownville Library. The library building is over 70 years old and is located in a part of the town that is on the national historic preservation register. Some of the costs related to the damage included the following.

The building wiring had to be replaced. Since the wiring was over 20 years old, replacing the wiring allowed the town to bring the wiring up to current code and accommodate the increasing technology needs of the library.
A large section of the interior walls (dry-wall) of the library had to be replaced and painted. The same type of material was used in replacing the interior walls.
All hardwood floors were replaced with the same materials.
Over 30,000 books suffered water damage.

a. Discuss whether the fact that the library building is in the historic part of town has any role in determining how to record and report the damage and repairs to the library.
b. Discuss how to determine if the library should be considered impaired and, if it is impaired, how accounting and reporting should be handled.
c. Discuss whether you would classify the costs incurred to repair the building as enhancements or replacements.
d. What information would you want before determining how to record and report the damage to the books?

Solution Preview

a. The building itself wouldn't be a major issue. We can't inflate the cost of a building because it is in a historic part of town. The value is the value, regardless of the part of town or the actual value of the building. The land and buildings themselves are likely priced higher in that part of town because it is a historic part of town. We can think of it in the opposite way. If we took a $20,000 building and stuck it in the middle of the historic town and the building caught fire, we couldn't inflate the costs solely because of the part of town that it is in, if that's not what it is worth. For real estate purposes we can do this by selling the cheap building for more, but for accounting recording purposes and ...

Solution Summary

In this solution, I thoroughly explain the damages present and the implications of the damages through each student question asked in the Town of Brownville Library case. Details discussed include the historic aspects in reporting the damages, how to determine if the library is an impaired asset, and how to handle costs from the damage. I also discuss information that would be needed to determine the amount to report on the books for the damages.