What is Written-Down Value?

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Written-down value is the value of an asset after accounting for depreciation or amortization. In short, it reflects the present worth of a resource owned by a company from an accounting perspective. This value is included on the company's balance sheet in its financial statements.Written-down value is also called book value or net book value.

Definition

Asset impairment refers to the value of an asset after considering depreciation or amortization. In simple terms, it reflects the present value of resources owned by a company from an accounting perspective. This value is included in the company's balance sheet and financial statements. Asset impairment is also known as book value or net book value.

Origin

The concept of asset impairment originated with the development of accounting standards, particularly in the late 20th century, as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) were refined. The introduction of this concept aimed to more accurately reflect the true value of a company's assets and prevent overvaluation.

Categories and Features

Asset impairment is mainly divided into two categories: tangible asset impairment and intangible asset impairment. Tangible asset impairment includes the value decline of physical assets such as machinery and buildings, while intangible asset impairment involves non-physical assets like goodwill and patents. A key feature of asset impairment is the need for regular assessment to ensure that the book value of assets does not exceed their recoverable amount.

Case Studies

A typical case is during the 2008 financial crisis when many companies had to impair their assets. For example, General Motors reported significant asset impairments in 2008, primarily due to the decline in value of its automotive production facilities and goodwill. Another example is Nokia's impairment of its mobile phone business in 2011, as a drop in market share led to a substantial decrease in asset value.

Common Issues

Common issues investors face when applying the concept of asset impairment include accurately assessing the recoverable amount of assets and determining when to conduct impairment tests. A common misconception is that asset impairment is always negative, but in reality, it can help companies more accurately reflect their financial condition.

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