Clayton City constructed a new Fifth Avenue bridge in 1991, but maintained no records supporting the cost of the bridge. The city’s engineers estimate that the current replacement cost of the bridge is $25 million. The current construction price index is 200, but was 150 in 1991 when the bridge was built. The city’s engineers also estimate that the bridge has a total useful life of 30 years. Since the city’s CPAs are conducting the annual financial statement audit, they have asked you, the city’s Accounting Manager, the following questions……..

a. What values should the city assign to the bridge for estimated historical cost and accumulated depreciation?

b. As a possible alternative, what value would the city assign to the bridge if it decided to use the modified approach to report its bridges?

c. In order to decide which way to go, do you believe that having depreciation charged for the bridge adds significant information to the city’s financial statements? Why or why not?