In a Set of Financial Statements, What Information Is Conveyed about Property and Equipment?

the book value of a plant asset is always equal to its fair market value.

Webworks purchases supplies worth $100 on account. During the year, Partyplace made some modifications to the limo that should make it more appealing to its customers, thus, in effect, increasing its productivity as it relates to the business. These modifications cost $4,000. Record this. On January 1, 20X3, Chang decides to get out of the soccer ball business, and sells the machine for $15,000. Record this journal entry.

the book value of a plant asset is always equal to its fair market value.

The fair market value of pp&e is typically determined by an independent appraisal. This appraisal will take into account a number of factors, including the age and condition of the asset, its current use, and the current market for similar assets.

What is the disposal of property, plant, and equipment (PP&E)?

Book value does not always include the full impact of claims on assets and the costs of selling them. Book valuation might be too high if the company is a bankruptcy candidate and has liens against its assets. What is more, assets will not fetch their full values if creditors sell them in a depressed market at fire-sale prices. DThe difference of $100 million between the FMV of the target’s equity plus liabilities less total assets represents the unallocated portion of the purchase price. In many cases, plant assets are sold rather than disposed of for no value in return.

  • If the asset is expected to be traded in on a new asset, its salvage value is the expected trade-in value.
  • Market value, also called fair value, is what an asset would sell for in the current market.
  • Springfield Corporation purchases a new machine on March 3, 20X4 for $35,600 in cash.
  • Describe how the cost principle applies to plant assets.

Different from the carrying value, the fair value of assets and liabilities is calculated on a mark-to-market accounting basis. In other words, the fair value of an asset is the amount paid in a transaction between participants if it’s sold in the open market. A willing buyer and seller have agreed upon this value. Due to the changing nature of open markets, however, the fair value of an asset can fluctuate greatly over time.

Book Value on a Balance Sheet

Essentially, the fair value of an asset is based on several factors such as utility, related costs, and supply and demand considerations. If a plant asset is retired before it is fully depreciated and no salvage value is received, a.

Is book value the same as market value?

Book value is the net value of a firm's assets found on its balance sheet, and it is roughly equal to the total amount all shareholders would get if they liquidated the company. Market value is the company's worth based on the total value of its outstanding shares in the market, which is its market capitalization.

Living animals and plants are always accounted for as biological assets. Biological assets are initially and subsequently measured at fair value less costs to sell. A financial liability cannot arise from constructive obligation.


Determine when the fair value of an asset received is used for recording an exchange rather than the fair value of the property surrendered. Record the exchange of one asset for another based on fair value and explain the rationale for this method of recording. Because the value is separated rather than used up, depletion initially leads to the recording of inventory . An expense is the book value of a plant asset is always equal to its fair market value. recognized only at the eventual point of sale. A method of allocating the cost of a wasting asset to expense over the periods during which the value is removed. Although the annual amounts are quite different, the overall net income is never affected by the allocation pattern in use. In this example, a building was bought for $600,000 and later sold after two years for $290,000.

What is the book value of an asset quizlet?

The book value of an asset is the asset's cost minus the accumulated depreciation since the asset was acquired. This net amount is not an indication of the asset's fair market value. The book value of an asset is also referred to as the asset's carrying value.

In other words, the carrying value generally reflects equity, while the fair value reflects the current market price. Recognized on the income statement as a loss on disposal of plant asset. When assets are retired, the entry credits the Equipment account for its original cost, debits the Accumulated Depreciation account for the entire amount of depreciation recorded. The loss is equal to the asset’s book value. The treatment of impaired goodwill according to international accounting standards is different from GAAP. International standards take into account that some portion of an asset may be recoverable if sold and that the asset may still have some value if used in some portion of the firm’s operations.

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