Friday, July 3, 2009

decline in value of fixed Assets and the balance sheet

the fixed assets shown at the debt side of the balance sheet,are those assets that will not be converted into cash within one year or during the operating cycle if the operating cycle is longer than one year.decline in value of fixed Assets ,as covered above, the rule for the recognition of gains and loss associated with discontinued operations is that the gain or loss is recognized in the period when it occurs. this means that expected future losses from operations are recognized only when they have actually occurred. however, one situation is an exception to this. if the company expects to have a loss in the future from the disposal of the assets of the segment (not a loss from operations in the future , but a loss from the sale of the assets), this expected future loss needs to be recognized in the current period. because this loss on the sale of the assets will result from the fact that the expected sales price is less than the book value of the assets, this indicates that the assets are overvalued. Since they are overvalued, the assets must be written down in the current period when this overstatement becomes apparent.remember that is this immediate recognition of future expected loss relates only to expected losses from the sale of assets. expected losses from operations are organized only when they actually occur. Any future expected gains (whether from operations or the disposal of assets ) will be recognized only when they actually occur.

No comments: