1To 3 Onlyposted 1My Testing The Value Of An Asse
Companies are often faced with the aspect of having to test the value of an asset on their books to see if it has been impaired.
company uses one of two values in the testing that is compared to the
book value of the asset. One of those values is the present value of the
future cash flows and the other is the value of the asset on the open
market. Both of these values involve estimations as to the true value of
What do you feel are some of the issues that could arise from these types of situations? Why do you feel they are issues?
Just do response each posted # 1to 3 only
first issue is as the professor stated, accountants are not appraisers.
They do not have the ability predict future outcomes. I currently have a
real estate license, one of the things that I have to educate my
clients about, that are looking to sell their homes, is that they cannot
set their on selling price. I let them know that I understand what
amount you want but you also have to understand that the market is
dictated by the buyers. If there are several homes in the area for sale
of similar style and features, you are not getting more than the market
rate. When you are the only house being sold in the neighborhood then
you can manipulate your way to the price you want.
That is the way I see asset valuations. How can I tell now about the
future if their will be other assets in the market that will make the
value of my asset decrease or if I will be the only one selling my asset
at that future time. I can not tell. Just like the Covid-19 came from
no where. People did not know three years ago that they were going to
have to sell of their store/office/restaurant equipment for such
discounted rates because more and more placed are going out of business
and goods are currently saturating the market.
If we lived in a perfect world accountants can be appraisers, and
forecasters. They can estimate a price and the future value, and not
have anything go wrong and get that price for their assets. But we do
not live in a perfect world, everything that can go wrong will go wrong.
You might not get the full use from an asset, or their might be down
time for repair etc. the possibilities are endless.
is great about being an accountant is the money whether it is the
present or future, it is not our money. We can tell you how much money
you have and how many years of depreciation is left on a big tractor,
but it is not our money. I see an estimation as a gamble, gambling is
something I steer away from. Yet whether it is a guaranteed profit and a
value is guaranteed to increase or decrease, it is a gamble. Investors
and shareholders must gamble their money into assets they believe in,
and maybe they might just get a hit (Kieso, Weygandt, & Warfield,
2018). Is an open market a greater opportunity for a larger gain whether
present or future, open to any bargain or impairment at any time?
believe what would work best is going by the quote, “Do not put all
your eggs into one basket”! A company can trade, hold, or in
there are many ways a company can test present value and future cash
flows. An investor is better off doing tests, they may run into many
tests with out comes of a loss. What we must do as accountants is
provide the most obvious data available during a present period or
moment. A loss or gain could be caused by our valued information, or
information can be considered an asset, we are assets, and we make sense
of values. We do not predict or estimate, the information we provide is
the value a company will use to decide what they choose when making
predictions or estimations (Kieso, Weygandt, & Warfield, 2018).
a company buys an asset they choose a method to depreciate and the
period of time that the asset is expected to benefit the company. The
key word here is ‘expected’. Many issues arise that can cause an asset
to not last as expected. It may wear out sooner than expected, become
outdated due to changes in technology, among many other reasons. When
this happens the carrying value on the company’s books is no longer
accurate and must be evaluated for impairment.
determine whether an asset is impaired, on an annual basis, companies
review the asset for indicators of impairments-that is, a decline in the
asset’s cash-generating ability through use or sale.’1 Users
of financial statements are assuming that the company is selecting the
best depreciation method and useful time period, and that their annual
valuation of assets is made in good faith. I worry that it could be
undetected if a company chose to misrepresent these numbers to
manipulate their net income. Since depreciation expense and impairment
loss both reduce the net income of the company these estimations become
important. Are there new rules and regulations that could help
streamline this process? I believe there could be, but until then as
accountants we will act in good faith to give the most accurate
financial report possible.