From the course: Finance and Accounting Tips

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Impairment

Impairment

From the course: Finance and Accounting Tips

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Impairment

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- The costs of long-term operating assets, like buildings and equipment, are allocated over time to the period in which those assets are used to generate revenues. This allocation process is called depreciation. Depreciation is just taking an asset's cost and allocating a portion of those costs as an expense to be matched against the revenues that that asset helped to generate. You buy a machine to produce products to sell, when that product is sold, the company records revenue. Part of the cost of generating that revenue is a portion of the cost of that machine. That cost is matched to the revenue it generates. And what happens over time is that the cost of the machine on the books of the company is reduced as its costs are allocated over time. The amount remaining on the books, surprisingly, is called book value. On occasion, companies need to check to compare the value of the asset on the books with the asset's actual market value. Many users of financial statements assume that the…

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