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If the fair value is less than carrying value (impaired), the goodwill value needs to be reduced so the carrying value is equal to the fair value. The impairment loss is reported as a separate line item on the income statement, and new adjusted value of goodwill is reported in the balance sheet. [10]
The fair value adjustment can relate to any assets or liabilities recorded on the balance sheet (or off-balance sheet items that should be recorded). One usual suspect can be fixed assets where it is likely that for example the book value of property can deviate significantly from its fair market value.
An impairment loss is determined by subtracting the asset's fair value from the asset's book/carrying value. Trademarks and goodwill are examples of intangible assets with indefinite useful lives. Goodwill has to be tested for impairment rather than amortized. If impaired, goodwill is reduced and loss is recognized in the Income statement.
To record sales, the perpetual system requires an extra entry to debit the Cost of goods sold and credit Merchandise Inventory. By recording the cost of goods sold for each sale, the perpetual inventory system alleviated the need for adjusting entries and calculation of the goods sold at the end of a financial period, both of which the periodic ...
The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the " lower of cost or market " rule. Prepaid expenses – these are expenses paid in cash and recorded as assets before they are used or consumed (common examples are insurance or office supplies).
Where the market value of goods has declined for whatever reasons, the business may choose to value its inventory at the lower of cost or market value, also known as net realizable value. [14] This may be recorded by accruing an expense (i.e., creating an inventory reserve) for declines due to obsolescence, etc. Current period net income as ...
The code directs that LIFO may be used "only if the taxpayer establishes" that they have no other way of valuing their inventory. [ 1 ] In the FIFO example above, the company (Foo Co.), using LIFO accounting, would expense the cost associated with the first 75 units at $59, 125 more units at $55, and the remaining 10 units at $50.
When this cash is paid, it is first recorded in a prepaid expense asset account; the account is to be expensed either with the passage of time (e.g. rent, insurance) or through use and consumption (e.g. supplies). A company receiving the cash for benefits yet to be delivered will have to record the amount in an unearned revenue liability ...