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What are violations? Investment Explanation

INVESTING TECHNOLOGY: What you need to know about depreciation, payments made on company accounts, for a steady decline in asset value

In this series, we parse the jargon and explain a popular term or topic of investing. Here is the deterioration.

Sounds unpleasant?

Yes. This accounting term appears more often in the city’s reporting as the outlook for the economy darkens due to rising inflation and the war in Ukraine.

If the evidence indicates that the value of the asset is constantly decreasing, the company’s accounts are charged for impairment.

This fee affects profits. There are two types of assets: tangible (construction tools) and intangible (copyrights, loans, patents, trademarks and the like).

Concern: This accounting term appears more often in city reports as prospects for the economy dim

What can cause an impairment charge?

If the loan has gone bad or it seems very likely, depreciation will be levied. Such write-offs may also be required if demand for the brand has declined or an event has occurred that will decommission the asset, such as a fire or hurricane that destroyed a major manufacturing facility.

War or conflict can also be the cause of accusations of damage.

How is depreciation different from depreciation?

The value of tangible assets is systematically recorded annually in the company’s accounts to reflect fair depreciation over their useful lives. Intangible assets are “amortized” in a similar way. Impairment payments are made when assets suddenly become less valuable for the reasons stated above – and this change is considered irreversible.

Did it affect the banks?

Yes. Lloyds recently warned that the depreciation of problem loans should increase (albeit from a low base) as a result of lower household cost of living.

The bank has already lent £ 177 million against the effects of the recession. It is noted that customers are unsubscribing to gyms and streaming services, and their food bills are rising. On the contrary, NatWest has released £ 38 million, reflecting smaller-than-expected losses.

Any other companies?

Yes. BP reported an impairment of $ 25 billion (£ 19.9 billion) following the withdrawal of a stake in Rosneft, the Russian oil giant.

General Electric has taken a $ 230 million fee, closing Russia’s aviation and energy business. Pepsi Co., another U.S. group, has stopped selling Pepsi and 7Up in that country and has assumed a fee of nearly $ 500 million.

When was the last time we saw violations of this degree?

In 2008, U.S. banks withdrew more than $ 25 billion in impairment from declining acquisitions. According to a report from the Office of Financial Control, the impairment of RBS – now NatWest – amounted to 32.5 billion pounds between 2007 and 2010. The bank suffered huge losses in many of its businesses, but commercial real estate loans were the biggest source of trouble.

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What are violations? Investment Explanation

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