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ACY TWO Limited (ACY TWO) purchased a building for $5 million at the beginning of Year 1. A total useful life of 50 years was
ACY TWO Limited (ACY TWO) purchased a building for $5 million at the beginning of Year 1. A total useful life of 50 years was estimated on the date of purchase. Residual value was assumed as zero. At the end of Year 5, ACY TWO estimated the market value of the building as $5 million, taking into account the recent transaction prices of similar nature in the same region. An active property market existed in the region. In Year 5, ACY TWO recorded a drop in sales and gross profit by 10% and 20% respectively from Year 4; while the net profit was maintained at a level similar to that in Year 4. In Year 5, you notice that "repairs & maintenance expenses on property" was $300,000 (Year 4: $600,000). Question Which one of below is the most likely technique adopted by ACY TWO in smoothing the reported results in Year 5? Select one: A. Taking a bath B. Income smoothing C. Real earnings management D. Classification shifting
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