Whilst we have discussed the term ‘residual value’, we haven’t really approached the matter of this being changed.
An asset’s residual value is an estimate the management makes using it’s best knowledge of the asset, it’s condition, it’s possible market at the end of it’s useful life, how extensively it will be used and so on. It’s not just the value the management believes they can get for the asset, but the conditions and inputs for determining the price. Continue reading
An asset is written down in value if and only if the recoverable amount identified is lower of the assets carrying value recognized within the books. On the basis of the test for an impairment you’ve identified the assets recoverable amount (as mentioned earlier it’s highest of either the ‘value in use’ or ‘fair value less costs to sell’) and now you compare it against the assets carrying amount. Provided the latter is the lower amount, you recognize an impairment charge in the amount that’s the difference between recoverable amount and the carrying value. Continue reading
So when is an asset, an item of property, plant and equipment impaired? When should you start questioning an assets carrying value being recoverable? Continue reading
Property, plant and equipment are a group of assets your company holds that are initially recognized on your balance sheet. Initially they’re measured at cost which we have defined before and that’s that. Or so you might think. Continue reading
First and foremost it’s important you go about and actually investigate into your property, plant and equipment items to identify all assets which don’t find any usage within your business, your production. Often enough I see that it’s not done and assets are carried on the balance sheet even if they’re fully depreciated and in reality not existing. There’s just clutter on your balance sheet that you should get rid of. Continue reading
We talk a lot about depreciation, however, as the situation may be, there are assets which don’t depreciate at all. Those are assets that you can technically use for as long as they exist and their value for your business wouldn’t change (unless their market value changes, which is another matter). Continue reading
When we think “depreciation”, we define it as reflecting on consuming future economic benefits arising from the asset. However, depreciation of an asset nonetheless begins when it’s available for use, that is, it is in the condition and location which are necessary for the asset to operate as intended. If you think about it, we cannot talk about economic benefits if the asset is still in store, can we? Continue reading