Due to a flood in the basement, about 1 foot of dry way was cut out around the perimeter of the basement (along with the carpet and baseboards). Given this kind of damage, is there some way to restore the dry wall or do I need to go with some kind of solution which involves wainscot panelling?

Also, is wainscot panelling typically installed in some kind of room which has tile/wood type of floor (as opposed to a room with berber carpet)? Our first floor has white classic-traditional raised panel wood wainscoting throughout. (We have a Colonial style house). If we have berber carpeting in the basement, should we use the panel type of panels as opposed to the beadboard type of panels?