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In 2006, the Financial Accounting Standards Board (FASB) implemented SFAS 157 in order to expand disclosures about fair value measurements in financial statements. [3] Fair-value accounting or "Mark-to-Market" is defined by FAS 157 as "a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date".
An asset's initial book value is its actual cash value or its acquisition cost. Cash assets are recorded or "booked" at actual cash value. Assets such as buildings, land and equipment are valued based on their acquisition cost, which includes the actual cash cost of the asset plus certain costs tied to the purchase of the asset, such as broker fees.
where: P is the principal amount borrowed, A is the periodic amortization payment, r is the periodic interest rate divided by 100 (nominal annual interest rate also divided by 12 in case of monthly installments), and n is the total number of payments (for a 30-year loan with monthly payments n = 30 × 12 = 360).
Amortization is the acquisition cost minus the residual value of an asset, calculated in a systematic manner over an asset's useful economic life. Depreciation is a corresponding concept for tangible assets. Methodologies for allocating amortization to each accounting period are generally the same as those for depreciation.
Depreciation vs. Amortization: Key Differences Depreciation and amortization both allocate the cost of assets over time. However, they apply to different types of assets:
Simple example If an investor owns 10 shares of a stock purchased for $4 per share, and that stock now trades at $6, the "mark-to-market" value of the shares is equal to (10 shares * $6), or $60, whereas the book value might (depending on the accounting principles used) equal only $40.
Amortization applies to your intangible assets and gives you a better idea of your business’s value.
Like depreciation, amortization involves writing off an asset’s initial cost over the course of the asset’s useful life. In this case, the asset’s value is divided equally by the number of ...