{"id":670,"date":"2021-12-03T12:00:00","date_gmt":"2021-12-03T12:00:00","guid":{"rendered":"https:\/\/www.smecpa.com\/?p=670"},"modified":"2021-12-03T22:00:15","modified_gmt":"2021-12-03T22:00:15","slug":"why-you-cant-always-count-on-the-book-value-of-property-and-equipment","status":"publish","type":"post","link":"https:\/\/www.smecpa.com\/why-you-cant-always-count-on-the-book-value-of-property-and-equipment\/","title":{"rendered":"Why You Can\u2019t Always Count On The Book Value of Property And Equipment"},"content":{"rendered":"\n

The market value of property and equipment often exceeds book value, especially for fixed assets that appreciate (rather than depreciate) in value or if your company uses accelerated depreciation methods. <\/p>\n\n\n\n

But the reverse sometimes occurs, too. When book value exceeds market value, a write-off may be required under U.S. Generally Accepted Accounting Principles.<\/p>\n\n\n\n

Understanding Book Value <\/strong><\/p>\n\n\n\n

What is the book value of property and equipment?<\/em><\/strong><\/p>\n\n\n\n

The book value of property and equipment is the cost that was paid for the individual piece of property and equipment, less the accumulated depreciation to date, on that piece of property or equipment.<\/p>\n\n\n\n

How do you calculate the book value of property and equipment?<\/em><\/strong><\/p>\n\n\n\n

For GAAP purposes most property and equipment is depreciated on a straight-line basis. <\/p>\n\n\n\n

For example, if a company purchases a car for $50,000 and determines that it will have a useful life of 5 years, the company would record $10,000 a year of depreciation expense. <\/p>\n\n\n\n

At the end of three years, the book value of the car would be $20,000, the $50,000 purchase price less three years of depreciation of $10,000 a year.<\/p>\n\n\n\n

Recording Impairment<\/strong><\/p>\n\n\n\n

Companies normally record fixed assets at historic cost and then depreciate them over their useful lives. But, sometimes an asset\u2019s book value (historic cost less accumulated depreciation) overstates its fair value. <\/p>\n\n\n\n

Fair value is \u201cthe price that would be received to sell an asset \u2026 in an orderly transaction between market participants at the measurement date,\u201d according to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures.<\/p>\n\n\n\n

To the extent that book value exceeds fair value, the value of an asset is \u201cimpaired.\u201d And you must report the impairment loss as part of your income from continuing operations. Impairment losses also reduce the carrying value of the impaired asset on your balance sheet. Once impairment has occurred, the FASB prohibits the upward revaluation of the asset in subsequent periods.<\/p>\n\n\n\n

Testing For Impairment<\/strong><\/p>\n\n\n\n

Companies aren\u2019t required to test property and equipment for impairment every accounting period. Rather, testing should occur on a consistent basis \u2014 say, every three to five years. Possible reasons for interim testing include changing market conditions, inaccurate useful lives or overpaying for an acquisition.<\/p>\n\n\n\n

Unfortunately, there are many reasons management may delay or deny impairment. An impairment loss lowers earnings and the value of fixed assets and, therefore, raises a red flag to investors and lenders. Additionally, impairment testing may be outside the comfort zones of some internal accounting personnel.<\/p>\n\n\n\n

Beyond Impairment<\/strong><\/p>\n\n\n\n

Your balance sheet also may be \u201coff\u201d if the fixed asset ledger isn\u2019t accurate. For example, you may no longer physically possess an asset that\u2019s been stolen by an employee. Or an asset may be idle, damaged or obsolete.<\/p>\n\n\n\n

Need Specific Advice? Our Tax Professionals Can Help<\/strong><\/p>\n\n\n\n

There are many nuances when it comes to reporting property and equipment. Our tax professionals<\/a> can help you get a handle on managing, depreciating and reporting impairment for these valuable assets.<\/p>\n\n\n\n

Whether you\u2019re assessing purchases made in 2021 or planning for major purchases in the year ahead, our team is here to help advise you along the way and ensure that you\u2019re reporting these expenses in a way that is most beneficial to your business tax liability. 
Ready to simplify business tax planning and accounting? Contact us<\/a> for more information.<\/p>\n","protected":false},"excerpt":{"rendered":"

The market value of property and equipment often exceeds book value, especially for fixed assets that appreciate (rather than depreciate) in value or if your company uses accelerated depreciation methods. But the reverse sometimes occurs, too. When book value exceeds market value, a write-off may be required under U.S. Generally Accepted Accounting Principles. Understanding Book…<\/p>\n","protected":false},"author":5,"featured_media":1613,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[14],"tags":[],"yoast_head":"\nWhy You Can\u2019t Always Count On The Book Value of Property And Equipment - SME CPA<\/title>\n<meta name=\"description\" content=\"If you are curious about the market value of property and how equipment often exceeds book value, SME CPA\u2019s has the perfect information for you.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smecpa.com\/why-you-cant-always-count-on-the-book-value-of-property-and-equipment\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why You Can\u2019t Always Count On The Book Value of Property And Equipment - SME CPA\" \/>\n<meta property=\"og:description\" content=\"If you are curious about the market value of property and how equipment often exceeds book value, SME CPA\u2019s has the perfect information for you.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.smecpa.com\/why-you-cant-always-count-on-the-book-value-of-property-and-equipment\/\" \/>\n<meta property=\"og:site_name\" content=\"SME CPA\" \/>\n<meta property=\"article:published_time\" content=\"2021-12-03T12:00:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-12-03T22:00:15+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.smecpa.com\/wp-content\/uploads\/2016\/08\/BlogGraphic_BookValueofProperty_2021-01-2.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1500\" \/>\n\t<meta property=\"og:image:height\" content=\"1500\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"zain\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.smecpa.com\/#website\",\"url\":\"https:\/\/www.smecpa.com\/\",\"name\":\"SME CPA\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.smecpa.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/www.smecpa.com\/why-you-cant-always-count-on-the-book-value-of-property-and-equipment\/#primaryimage\",\"inLanguage\":\"en-US\",\"url\":\"https:\/\/www.smecpa.com\/wp-content\/uploads\/2016\/08\/BlogGraphic_BookValueofProperty_2021-01-2.png\",\"contentUrl\":\"https:\/\/www.smecpa.com\/wp-content\/uploads\/2016\/08\/BlogGraphic_BookValueofProperty_2021-01-2.png\",\"width\":1500,\"height\":1500},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.smecpa.com\/why-you-cant-always-count-on-the-book-value-of-property-and-equipment\/#webpage\",\"url\":\"https:\/\/www.smecpa.com\/why-you-cant-always-count-on-the-book-value-of-property-and-equipment\/\",\"name\":\"Why You Can\u2019t Always Count On The Book Value of Property And Equipment - 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