Cases on Recognition Measurement

The "See-through" Office Building Case

"What goes down must come back up"

Dauntless Development Company owns what is referred to as a "see-through" office building, as the glass-walled structure is largely unoccupied and most floors are unfinished internally. The building cost Dauntless $10 million to build and was the last building completed during the downtown building boom. It is now 5 years old and has a carrying amount of $9 million.

Although the building is less than 30 percent occupied, management believes there is no reason that its carrying amount will not be recovered over the remainder of the building's expected 50-year life. Current vacancy rates are such that there is a 15-year supply of equivalent vacant space available in the area.

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Should the building that Dauntless owns be regarded as an "impaired asset" and its carrying amount be written down? If so, to what amount should it be written down?

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