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General Accounting Discussions: How to bridge book value and market value on the balance sheet?

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    • CommentAuthorasterixia
    • CommentTimeJun 12th 2008
     
    Hello,

    So far I know, we should use book value on the balance sheet. But the manager consider to show the market value because shareholders consider more the market value. How to solve this problem? Is there any possibility to use market value on the balance sheet? If not, how to bridge between book value and market value?

    Thanks for your answer,
    Asterixia
    • CommentAuthormomma4_5
    • CommentTimeJun 13th 2008
     
    What assets are you talking about??? Investments??? Here is where you use LCM (lower of cost or market) for things that are held for sale. As for fixed assets (pp&e), you are to use the book value (cost less acc depreciation). I hope that this helps to answer your question...
  3.  
    Thanks for the comment. However, what would be the value in case of Land? Because the value of Land never gets depriatiated but appriciated every year. Please give your comment.
    • CommentAuthorramesh
    • CommentTimeJun 23rd 2008
     
    May I join in and add to the confusion ?

    You have two things here: Revaluation of investments and revaluation of fixed assets.

    You hold investments either for the purpose of trade or realisation on maturity. Companies normally revalue assets on periodical basis in respect of shares meant for trade. This is called marking to market. Likewise, land when revalued can cause sudden increase in assets side leading to an automatic increase in the form of revaluation reserve on the liabilities side. This is a bad accounting practice. You can also have revaluation of inventory. This revaluation normally takes place due to change in the inventory valuation methodology from First In First Out, to Last In First Out. Even this will cause a distortion in the value of inventory (inflate). Any significant change in accounting treatment should be reported in the balance sheet so that the shareholders understand the movement of assets and liabilities.

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