ssssBook Value Book value is the net asset value, the remaining benefit the asset will provide. The book value is an asset's historical cost less any depreciation and impairment costs. For Example: Suppose we buy a car for 1 million rupees, car value is depreciated by 1 lakh each year, after 5 years the book value of the is 5 lakhs. Historical Cost Historical cost is when a transaction is done or an asset is acquired. Depreciation is always getting calculated on the historical cost. For Example: Suppose we buy a car for 1 million rupees, car After 5 years the car historical cost remains 1 million. Fair Market Value (FMV) The fair value of an asset is the amount of money you would get if you sold the good in the current market or you would pay if you bought the good in the current market. For Example: Suppose we a buy a machine for $100, shipping cost of machine is $100 and commission charges are $10, the Fair market value of the Machine is S100. Net Realizable Value (NRV) The Net Realizable Value or NRV is the value of an asset that a seller expects to get less the cost or expenses in selling or disposing of the asset. NRV= Expected Selling Price - All Selling Costs For Example: Suppose we a buy a machine for $100, shipping cost of machine is $20 and commission charges are $10, the NRV of the Machine is: NRV= $100-$20-$10 = $70 NAV "Net asset value," or "NAV," of an investment company is the company's total assets minus its total liabilities. For example: If an investment company has securities and other assets worth $100 million and has liabilities of $10 million, the investment company's NAV will be $90 million. Acquisition Cost Acquisition cost refers to the all-in cost to purchase an asset after adjusting for discounts, incentives, closing costs and other necessary expenditures, but before sales taxes. For Example: Suppose we a buy a machine for $100, shipping cost of machine is $20, commission charges are $10, and installation charges is $5, so the Acquisition cost of the Machine is $130. GOODWILL Goodwill arises when one company is purchased by another company. If the purchase price is greater fair value at acquisition then goodwill is created in the acquirer’s balance sheet. Goodwill is subject to impairment Example: Company A buys company T for 100 million. Book value of the company T’s asset and liabilities: 125 million and 75 million. Fair value of company T’s assets and liabilities: 160 million and 75 million. What is the goodwill? Data: Buying Price of Company T = 100 Million Book Value of Company T Assets = 125 Million Book Value of Company T Liabilities = 75 million Fair Value of Company T Assets = 160 Million Fair Value of Company T Liabilities = 75 million Goodwill =? Solution: Company T selling price = (Fair value of company T assets) – (Fair Value of Company T Liabilities) Company T selling price = 160 million – 75 million = 85 million But the company A buys company T for 100 million, Pays 15 million (100 million – 85 million) extra. These extra “15 million” Company A pays as a Goodwill for Company T. Held to Maturity: → Held-to-maturity (HTM) securities are purchased to be owned until maturity. → Bonds and other debt securities, such as certificates of deposit (CDs) are the most common form of held-to-maturity (HTM) investments. Held for Trade: → A held-for-trading security is a debt or equity investment purchased with the intention of short-term gain. → On the balance sheet, held-for-trading securities are considered current assets. → Held-for-trading securities are reported at fair value, and unrealized/gains or losses are reflected in earnings. Available for Sale: → Available-for-sale securities (AFS) are debt or equity securities purchased with the intent of selling before they reach maturity. → Available-for-sale securities are reported at fair value. → Unrealized gains and losses are included in accumulated other comprehensive income within the equity section of the balance sheet. Two types of Gains: Realize Gain or Income A realized gain results from selling an asset at a price higher than the original purchase price. It occurs when an asset is sold at a level that exceeds its book value cost. Unrealized Gain or Income An unrealized gain is an increase in the value of an asset or investment that an investor holds but has not yet sold for cash, such as an open stock position.