Concept of Market Value Assets

Question: Discuss about the Concept of Market Value Assets. Answer: Introduction Impairment happens when fixed assets depreciate in the concept of market value which is to be considered as fair.. It occurs when the value booked in accounts of goodwill or assets exceeds the recoverable amount. Impairment mostly calculated on long lived fixed assets like land, building, machinery, equipment etc. the impairment losses must be reported in profit and loss account. When company sold or abandoned the long term fixed assets because the company does not have any expectation that those assets will bring profits or value in long run operations of the company. Technically we can derive the impairment loss by deducting the depreciation from acquisition cost, or by subtracting the fair value of asset as per market (FMV stands for monetary value of the asset subject to its selling in the market) from carrying value, it is the decrease of the net carrying value. The shareholders of the public ltd company may lose their equity depending upon the type of asset being impaired. If the impairment happens the company must show the company has to decrease its value in balance sheet and indicate a loss in the income statement(Accountingtools, 2016). Discussion The impairment loss can be described as the amount by which carrying value of a long lived asset or the revenue generating asset crosses its recoverable amount. Every asset should be tested, if there is any indication of impairment. Every year the business has to identify the asset to be impaired and those assets must be reported to the statement. First step is to identifying what are the factors are responsible for impairment of the fixed asset, the factors may be the change in government policy, change in companys own policy, changes in the market or trends, new regulations, turnover or decrement of asset effectiveness so far functioning for long period. Considering a few cases may be health of the assets are fine, working smoothly but due to change in consumer behaviour or changes in technology or changes in techniques the fair market value goes down significantly. We can check this in our daily life also, many of us having cassette player in our home but when CD player comes it changes in technology and the cassette player losses the importance. So we call this this is carrying impairment loss. The concept of Fair market value is considered as the monetary value of the respective asset, if the same is being sold to the intended market. Sometimes this concept is being explained as intending cash flow of future because the a sset is expected yielding the business or revenue continuously. Also, it is termed or described as recoverable amount, it is the amount which can be produced from the fixed assets by selling or by using them. Comparison with the Carrying value comes in the indent of FMV is assigned. Asset is considered as impaired in case the determined cost of retention of the asset exceeding the calculated FMV. Impairment losses are determined either through the model of revaluation or through the model of cost It does also incur some tax relief for the identity, the realization of impairment is not an healthy sign for the entity with overall aspect, it also directs to further reinvestment(Wikihow, 2015). There are two methods are followed to calculate the impairment losses. The incurred loss model Expected loss model Incurred loss method (ILM) is the process of evaluating the credit loss. The incurred loss model simply describe the investments are already impaired as there is no longer any hope to generate cash or revenue or cash flow from the assets impaired. The company indicate impairment when triggering events happens with the assets(Iasplus, 2014). Financial difficulties is experienced Defaulted Bankruptcy or going through any major financial reorganization Major negative economic change The advantages of this method are the impairment can be recognized by an incident which brings a loss of the value of the credit. In such cases the impairment can be calculated be the simple formula Impairment cost = recoverable amount carrying value Derivation of Carrying value comes from the figures of balance sheet. The expected loss model As the name suggests expected loss that means the future cash flow. There are three stages for expected credit loss model . When any financial instrument is procured a credit loss of 12 month is estimated to be done and recognized by the Profit and Loss a/c and loss allowance is made. Without adjustment calculation of interest revenue is on the gross carrying amount. In case of arising of credit risk with the effect of worsening the resulting credit quality , full credit loss has to be recognized. The revenue calculation is same. If financial asset risk rises when assessing the financial asset individually, the interest rate will be calculate based on the amortised cost(Pwc, 2014). Conclusion The impairment loss is the depreciation or loss of the valuation of fixed assets so far fair market value is concerned which is proved to in excess of the book value of the asset as per the financial statement of the organization. Practice of impairment loss evaluation is necessary for every company not only that the impairment loss should be identified by the accounts statement of the organization. Every asset should be tested, if there is any indication of impairment. Every year the business has to identify the asset to be impaired and those assets must be reported to the statement. It is simple depreciation value of the fixed assets which includes the land, building, machinery equipment etc. there are certain methods of evaluating the loss of the assets which we have discussed one is incurred loss model and another is expected loss model. There are certain factors which can be responsible for this depreciation like change of regulations and legislations, change in technology, change in techniques or may happen due to change in consumer behaviour. Technically we can derive the impairment loss by deducting the depreciation from acquisition cost, or by subtracting the asset fair market value. The calculation of impairment loss is impairment cost= recoverable amount carrying value. The impairment loss may lead to the few tax relaxation allowed to the organization. The amount realised in the process is not good for the organization in overall aspect.. The effect of impairment loss indicates the need for reinvestment or increase of investment. Impairment loss journal entry: Journal Entry- CrossBow Ltd- impairment loss as on 30.06.2015 Date Particulars amount amount 30.06.2015 Impairment Losses A/c debit $29,000.00 Land A/c Credit $29,000.00 Being the impairment loss on land booked References: Accountingtools, 2016. Fixed Asset Impairment Accounting | Impairment Loss Accounting. [Online] Available at: https://www.accountingtools.com/impairment-loss-accounting [Accessed 21 September 2016]. Iasplus, 2014. Financial instruments Impairment. [Online] Available at: https://www.iasplus.com/en/projects/completed/fi/fi-impairment [Accessed 21 September 2016]. Pwc, 2014. IFRS 9 Expected credit losses. [Online] Available at: https://www.pwc.com/us/en/cfodirect/assets/pdf/in-depth/us2014-06-ifrs-9-expected-credit-losses.pdf [Accessed 21 September 2016]. Wikihow, 2015. How to Calculate Asset Impairments. [Online] Available at: https://www.wikihow.com/Calculate-Asset-Impairments [Accessed 21 September 2016].