The Wall Street Journal (December 12, 1995) reported that the FASB now requires that com¬ panies must estimate the future expected value of individual assets and take a write-down in each case if the future value is less than the book value. While this requirement is expected to reduce the earnings numbers of many firms, it is expected to hit the oil companies especially hard. Texaco, for example, took a $640 million charge related to the rule, noting that the new rule eliminated their practice of assessing the value of oil fields collectively, requiring them to assess each field individually. Chapter 9 Long-Lived Assets 469 REQUIRED:

a. Explain how applying this rule on an asset-by-asset basis could give rise to a greater write¬ down than applying the rule collectively.

b. A security analyst, John Tumazos, commented in the article that “the new rule shouldn’t cause panic among investors in general... for healthy companies the standard merely rep¬ resents a different way of recognizing losses and profits at a given time.” Explain what Mr. Tumazos means, and how this rule could help companies more effectively practice cer¬ tain reporting strategies