COMPANY FINANCIAL

STATEMENTS
Dr. Kavitha Menon
Final Accounts

■ At the Annual General Meeting (AGM) of a company, the BoD

of the company shall lay financial statements before the
company
– A balance sheet as at the end of the financial year
– A profit & loss account or income & expenditure a/c
– Cash flow statement for the year
– A statement of changes in equity
– An explanatory note annexed
Meaning
■ Final accounts are the end results of the working of the organization.
We prepare two statements:
■ Profit & Loss Statements ■ Balance Sheet
– Gives net profit earned or losses – Also called Statement of Affairs
incurred during the period under or Position
consideration – Gives details of assets owned &
– Flow Concept – prepared for a liabilities owed by the
period organization
– It is prepared for the year ended – Stock concept – prepared at a
31 March 20XX particular point of time
– Prepared as on 31 March 20XX
– Vertical format
Schedule III

■ Balance Sheet format given in Part I of Schedule III of the

Companies Act, 2013
■ Statement of Profit & Loss format given in Part II of
Schedule III
Profit & Loss A/c

■ Prepared for a year i.e. April 1 to March 31, next year

■ Shows the financial performance of the business i.e.
profit earned or loss incurred during the accounting
period.
■ Format prescribed in Part II of Schedule III of the
Companies Act, 2013.
 Name of the Company
Statement of Profit and Loss for the year ended 31 March, 20X2
Particulars Note For the year For the year
No. ended ended
31 March, 20X2 31 March, 20X1
Rs. Rs.
I. Revenue from operations
II. Other income
III. Total revenue (I + II)
IV. Expenses
Cost of materials consumed
Purchases of stock-in-trade
Changes in inventories of finished goods, work-in-
progress and stock-in-trade
Employee benefits expense
Finance costs
Depreciation and amortisation expense
Other expenses
Total expenses
V. Profit before exceptional & extraordinary item & tax
(III-IV)
VI Exceptional items
VII. Profit before extraordinary item & tax (V- VI)
VIII. Extraordinary items
IX. Profit / (Loss) before tax (VII-VIII)
X Tax expense:
(a) Current Tax
(b) Deferred Tax
XI. Profit / (Loss) for the period from continuing
operations
XII. Profit / (Loss) for the period from discontinuing
operations
XIII. Tax expense for discontinuing operations
XIV. Profit / (Loss) for the period from discontinuing
operations after tax (XII- XIII
XV. Profit (Loss) for the period (XI+XIV)
XVI. Earnings per share
(1) Basic EPS
(2) Diluted EPS
REVENUE FROM OPERATIONS
Revenue earned by the company from its operating activities i.e. activities carried on to
earn profit
(A) In respect of a company other than a finance company revenue from operations shall
disclose separately in the notes revenue from—
(a) Sale of products;
(b) Sale of services;
(c) Grants & Donations received (only Section 8 companies)
(d) Other operating revenues (duty drawback, export subsidy, scrap sale);
Less:
(d) Excise duty. (tax to be paid to government)
(B) In respect of a finance company, revenue from operations shall include revenue from—
(a) Interest; and
(b) Other financial services.
OTHER INCOME (not related to main activity)
Income earned from other sources (not from business activities)
i.e. non-operating activities
■ Interest income from investments (in case of a company other a
finance company)
■ Dividend income
■ Net gain/(loss) on sale of investments
■ Gain on sale of property, plant/assets scrapped
■ Insurance claims received
■ Royalty received from subsidiaries
■ Rental income
EXPENSES - CPCEFDO
■ Cost of materials consumed
■ Purchase of stock in trade
■ Changes in inventories of finished goods, work-
in-progress and stock-in-trade
■ Employee benefits expense
■ Finance costs
■ Depreciation and amortization expense
■ Other expenses
Cost of materials consumed

■ Cost of raw materials & other materials consumed in

manufacturing the goods.
■ Opening Stock of Raw Materials + Net Purchases –
Closing Stock of Raw Materials
■ Both raw materials & packing materials
Purchases of stock-in-trade

■ Goods purchased for resale.

■ If the company carries out further processing on the
goods purchased, they are not stock in trade but will be
part of Cost of Materials Consumed.
■ E.g.
– A company purchases paper for resale: Purchases
of stock in trade
– Paper is purchased for manufacturing notebooks -
Cost of Materials Consumed
Changes in inventories of finished goods,
work-in-progress and stock-in-trade
This is the difference between opening stock & closing
inventories of finished goods, work-in-progress & stock-in-
trade
■ If opening is greater than closing – difference is positive
■ If opening is lesser than closing – difference is negative
■ In Notes to accounts – each item shown separately.
Employee Benefit Expenses
■ Payments made to and for the benefits of employees
■ Example:
– Salaries
– Wages
– Contribution to provident fund & other funds
– Gratuity
– Leave encashment
– Expense on Employees Stock Option Plan (ESOP) &
Employee Stock Purchase Plan (ESPP)
– Staff welfare expenses
– Bonus
Finance Costs
■ Cost incurred by the company on the borrowings i.e.
loans taken
■ Interest paid on short-term and long-term loans taken
by the company - Overdrafts, Cash Credits, Debentures,
Bonds, Cash Credit, Public Deposits, Term Loans from
banks
■ Bills Discounting charges
■ Loan Processing Fee
■ Other borrowing costs
Depreciation and amortization expense
■ Depreciation is fall in the value of tangible assets
(assets that have a physical existence, capable of being
touched, felt, seen) due to its usage or efflux of time or
obsolescence
– Charged on property, plant & equipment, loose tools,
furniture
■ Depreciation on right-of-use (RoU) assets (a lessee's right
to use an asset over the life of a lease)
■ Amortization – used for depreciating intangible assets
(lack physical existence)
– Charged on technical knowhow, goodwill, computer
software, patents, trademarks, copyrights etc.
Other expenses – expenses that do not
find place in the above mentioned heads
(a) Consumption of stores, (g) Rates and taxes (excluding
spares and tools taxes on income)
(b) Power and fuel (h) Auditor’s remuneration
(c) Rent (i) Packing and freight charges
(d) Repairs & maintenance (j) Advertisement and publicity &
(e) Corporate Social Other marketing expenses
Responsibility expenses (l) Bad debts written off
(f) Insurance (m) Discount allowed
 Exceptional Items
■ One-off events occurring normal course of the business that either caused
a great expense or a big bout of revenue
■ They are not expected to be recurring but occur due to company’s normal
course of business activity
■ Amount is material
■ Example:
– Profits or losses on disposal of fixed assets
– Disposal of long term investments
– Amount received in settlement of insurance claims
– Compensation provided for voluntary retirement scheme
– Litigation/legal settlement
Extraordinary items
■ Arise from abnormal or unusual events & not in the ordinary course
of business
■ Not expected to recur frequently or regularly
■ Company has no control on its occurrence.
■ Only on rare occasions
■ Example
– Losses from disasters not commonly insured against (e.g., wars,
riots, and earthquakes)
– Losses in production due to labour strikes.
– Loss by theft
– Significant change in Government policies
Tax Expense
■ Current Tax
– The amount of income tax determined to be payable
(recoverable) in respect of the taxable profit/ (tax loss) for a
period.
■ Deferred Tax
– The tax effect due to timing differences which are temporary
– Timing differences are the differences between taxable
income and accounting income for a period.
– Can be positive or negative
Example of Deferred Tax

■ Under IT, machinery purchased for scientific research

related to business is fully allowed as a deduction in the 1st
year for tax purpose.
■ In the books, for accounting purposes, the depreciation
would be under straight line method and spread over its
useful life.
■ Thus, total depreciation charged on the machinery for
accounting purposes and amount allowed as deduction for
tax purposes will be ultimately the same but periods over
which the depreciation is charged & the deduction is
allowed will differ.
 Example of Deferred Tax
■ IT allows full depreciation on an asset for Rs. 10,000 in year
1 itself but company depreciates in 2 equal instalments of
Rs. 5000 each year. Tax rate is 10%.
Year 1 Year 2 Rs. 500 paid less
Books IT Books IT in Year 1 is to be
Profit 200,000 200,000 200,000 200,000
paid next year.
Depreciation (5000) (10000) (5000) - Deferred Tax
Liability
Profit before 195,000 190,000 195,000 200,000
tax Add to P&L – will
Tax 19500 19000 19500 20000
be paid next year
 Example of Deferred Tax
■ Company charges full depreciation on an asset for Rs.
10,000 in year 1 itself but IT allows depreciation in 2 equal
instalments of Rs. 5000 each year. Tax rate is 10%.
Year 1 Year 2 Benefit of Rs. 500
paid more in Year
Books IT Books IT 1 (advance Tax)
Profit 200,000 200,000 200,000 200,000 will be adjusted in
next year.
Depreciation (10000) (5000) - (5000)
Deferred Tax Asset
Profit before 190,000 195,000 200,000 195,000
tax Subtracted in P&L
– as it is paid in
Tax 19000 19500 20000 19500 advance
EPS – Earnings per share

■ Earnings on each share

■ EPS which accrues to the equity shareholders of the company
after paying dividends to preference share holders.
■ Indicates company’s profitability.
Basic EPS

■ Normal EPS
■ This is derived by dividing the net profit (after deducting
dividend on preference shares) of a company by the total
number of ordinary shares outstanding.
■ Basic EPS = NP after tax & preference dividend/no. of equity
shares outstanding
Diluted EPS
■ Calculated by assuming that everyone who has an instrument
that can be converted into an equity share converts it into an
equity share and so the total number of outstanding shares of
the company increase, thereby reducing the EPS.
■ Shows EPS a business could earn, if all the stock options,
share warrants, convertible securities, were taken into account
along with the additional no. of shares at that time.
■ Diluted EPS = NP after tax & preference dividend/ All
convertible securities + common shares
 Name of the Company
Balance Sheet as at 31 March, 20X2
Particulars Note As at 31 As at 31
No. March, 20X2 March, 20X1
Rs. Rs.
I. EQUITY AND LIABILITIES
1Shareholders’ funds
(a) Share capital
(b) Reserves and surplus
(c) Money received against share warrants
2Share application money pending allotment
3Non-current liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (net)
(c) Other long-term liabilities
(d) Long-term provisions
4Current liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
TOTAL
II. ASSETS
1 Non-current assets
(a) Property, Plant & Equipment and Intangible
Assets
(i) Property, Plant & Equipment
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long-term loans and advances
(e) Other non-current assets
2 Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
TOTAL
DISCLOSURES
SHAREHOLDER’S FUNDS

■ Under the Keyword “Shareholders’ Fund/ Owner’s

Fund” figures appearing under Owner Funds /
Shareholding / Capital Investment / Equity Share
/ Equity Interests / Share Ownership / Capital
Account / Partners’ Capital /Capital Providers /
Stockholder / Venture Capitalists / Own Capital /
Endowment Fund/ Corpus Fund /General Fund
etc. inclusive of Reserve and Surplus is to be
mentioned
Share Capital
■ The number and amount of authorized share capital
■ The number of shares issued, subscribed & fully paid, &
subscribed but not fully paid
■ Par value per share
■ A reconciliation of the number of shares outstanding at the
beginning and at the end of the reporting period.
■ The rights, preferences and restrictions attaching to each
class of shares including restrictions on the distribution of
dividends and the repayment of capital.
Share Capital
■ Shares in respect of each class in the company held by its
holding company or its ultimate holding company
■ Shares in the company held by each shareholder holding more
than 5 per cent, shares specifying the number of shares held.
■ Shares reserved for issue under options and
contracts/commitments for the sale of shares/disinvestment,
including the terms and amounts.
Share Capital
■ For the period of five years immediately preceding the date as at
which the Balance Sheet is prepared.
– Aggregate number and class of shares allotted as fully paid-
up without payment being received in cash.
– Aggregate number and class of shares allotted as fully paid-
up by way of bonus shares.
– Aggregate number and class of shares bought back.
Share Capital
■ Terms of any securities convertible into equity/preference shares
issued along with the earliest date of conversion in descending
order starting from the farthest such date.
■ Calls unpaid (showing aggregate value of calls unpaid by
directors and officers).
■ Forfeited shares (amount originally paid-up).
Equity Share Capital
■ To raise money, a company issues a certain number of
shares to the public at face/par/nominal value
■ When the company issues shares, it will decide the face
value ( ₹1, ₹2, ₹5 or ₹10)
■ Equity Share Capital = Face Value x No. of shares issued
■ Company can sell over and above face value i.e. at a
premium. The amount received is “Securities Premium”
shown under Reserves & Surplus”
Reserves and Surplus
RESERVES - The amount set aside i.e. transferred out of profits
– To meet legal requirements (Capital Reserve, Capital
Redemption Reserve, Debenture Redemption Reserve)
– Amount received by way of Securities Premium
– To meet any liability (e.g. Workmen’s Compensation
Reserve)

SURPLUS – Balance in Statement of Profit & Loss –

accumulated profits not appropriated or distributed as
dividend
Reserves and Surplus
a) Capital Reserves; e) Other Comprehensive Income
b) Capital Redemption f) General Reserve
Reserve;
g) Surplus i.e., balance in
c) Securities Premium Statement of Profit and Loss
Reserve;
d) Debenture Redemption
Reserve;

Additions and deductions since last balance sheet and closing

balance to be shown under each of the specified heads
CAPITAL RESERVE DEBENTURE REDEMPTION RESERVE SECURITIES PREMIUM
■ A reserve created out of ■ A fund requirement
maintained by the companies ■ When a company issues
capital profit that issue debentures in securities at a price which
– Gain on ale of property, India to protect the investors is more than the nominal
plant & equipment from the possibility of the
company defaulting on value, the aggregate
– Gain on sale of repayments. amount of premiums
investment received is transferred to
■ DRR ensures enough funds
– Gain on purchase of an are available to meet the securities premium a/c
existing business obligations of debenture
holders.
OTHER COMPREHENSIVE INCOME (OCI)
CAPITAL REDEMPTION
RESERVE ■ Gain or loss that has not been realized on investments
& fixed assets
■ A reserve created when a
company purchases its ■ Revaluation
own shares or during
redemption of preference RETAINED EARNINGS
shares ■ Profits earned till date
■ It’s a statutory reserve
Reserves & Surplus

■ Debit balance of statement of profit and loss (DENOTING

LOSS) shall be shown as a negative figure under the head
“Surplus”.
■ Similarly, the balance of “Reserves and Surplus”, after
adjusting negative balance of surplus, if any, shall be shown
under the head
■ “Reserves and Surplus” even if the resulting figure is in the
negative.
Money received against share warrants
■ Share Warrant is an option issued by the company that gives the
holder a right to subscribe to equity shares at a pre-determined
price (which is lower than the market price) within a certain time
period. Thus share warrants will be converted into equity shares
at a later date at a specified value.
■ They are issued to attract potential investors to invest in the
company. Sometimes, offered to promoters or employees as
incentive. They are issued with debentures/bonds or preference
shares that allows an investor the option to purchase the shares
at a later date. This will help the issuing company to pay lower
rate of interest on debentures
SHARE APPLICATION MONEY PENDING
ALLOTMENT
■ A Company receives certain amount from shareholders on application
known as share application money
■ Inspite of receipt, allotment maybe pending.
■ Share application money to the extent not refundable is included in
Shareholders’ Funds, as it is the amount received by the company against
which allotment will be made.
■ Happens only when application money is received before Balance Sheet
date & allotment is done after Balance Sheet date
■ If share application money is received and no allotment will be made (in
case of over-subscription) it is shown under the head Other Current Liability
as the amount is refundable at some later date.
NON CURRENT LIABILITIES

■ Liabilities which need to be repaid for more than 1 year.

NON CURRENT LIABILITIES

■ Four sub-headings
– Long term borrowings
– Deferred tax liabilities
– Other Long term liabilities
– Long term provisions
Long Term Borrowings

(a) Bonds/debentures;
(b) Term loans:
(A) from banks.
(B) from other parties.
(c) Deferred payment liabilities;
(d) Deposits;
(e) Long term maturities of finance lease obligations;

Borrowings shall further be sub-classified

as secured and unsecured.
Deferred Tax Liabilities

■ Every year accounting income is compared with taxable income

as rules as per IT Act and Financial accounting are different.
■ If difference between the two exists which is temporary in
nature, income tax on the difference is termed as deferred tax.
■ If taxable income is lesser than accounting income, it results in
deferred tax liability. (Paying less)
■ If taxable income is greater than accounting income, it results in
deferred tax asset (advance tax)
Other long term liabilities

(a) Trade payables: Amount due on account of goods

purchased or services received in the normal course of
business which are not current liabilities; i.e. those agreed
to be settled after 12 months
(b) Others: Amount payable in respect of statutory obligation
(Investor Education & Protection Fund), purchase of assets
Long term provisions
■ PROVISION – Amount set aside to meet future liability, the
amount of which cannot be determined with accuracy but is
estimated.
■ Provisions against which liability will arise after 12 months of
the date of balance sheet or after the period of operating cycle
■ The amounts shall be classified as:
(a) Provision for employee benefits – retirement benefits,
gratuity,
(b) Those of specific nature – e.g. Provision for warranty
claims, Provision for Earned Leave
CURRENT LIABILITIES
■ Liabilities that are expected to be settled in the company’s
normal operating cycle or due to be settled within 12
months
■ Divided into:
– Short term borrowings
– Trade payables
– Other current liabilities
– Short term provisions
Short-term borrowings
(a) Loans repayable on demand;
(A) from banks.
(B) from other parties.
(b) Bank overdraft
(c) Cash Credit
(d) Loans and advances from related parties;
(e) Deposits
(f) Current Maturities of Long-term debts
Borrowings shall further be sub-classified
as secured and unsecured.
Trade Payables

■ A payable shall be classified as a “trade payable” if it is in

respect of the amount due on account of goods purchased
or services rendered in the normal course of business.
■ Includes sundry creditors & bills payable
 Other current liabilities
(f) ESI Payable
(a) Interest accrued but not
due on borrowings; (g) Outstanding expenses
(b) Interest accrued and due on (h) Provident Fund payable
borrowings;
(c) Unpaid dividends;
(d) Unpaid matured deposits &
interest accrued thereon
(e) Income received in
advance;
Short-term provisions

■ Proposed dividend
■ Provision for tax
■ Provision for expenses (say Electricity)
■ Provision for warranty
■ Provision for employee benefits (to be settled within 12
months)
Assets = Shareholder’s Funds + Liabilities
NON-CURRENT ASSETS
■ Those assets which are not current assets.
■ Divided into
– Property, plant & equipment & Intangibles
– Non-current Investments
– Deferred Tax Asset
– Long-term loans & advances
– Other non-current assets
Property, plant & equipment & Intangibles

■ Held not for the purpose of sale but for the purpose to increase
earnings of the business.
■ Used for along time to earn profit
■ Divided into:
1. Property, plant & equipment
2. Intangible assets
3. Capital Work-in-progress
4. Intangible assets under development
Property, plant & equipment
■ Tangible assets – Having physical existence, assets which can
be physically seen and touched
– Land
– Building
– Plant and Equipment
– Furniture and Fixtures
– Vehicles
– Office Equipment
– Computers
Property, plant & equipment
■ It is necessary to give the following information regarding each
class or kind of fixed tangible asset:
a. Original cost
b. Addition (purchase)
c. Deductions (sale)
d. Total depreciation written off or provided for up to the end of
the year.
Intangible Fixed Assets
Assets which do not have physical evidence & thus cannot be
touched & seen.
Goodwill
Brands / Trademark
Computer software
Mining rights
Copyrights and patents
Recipes, formulae, models and designs
Licenses and franchise.
Capital Work-in-Progress

■ Items of property, plant and equipment under construction

Intangible assets under development

■ Patents, Intellectual Property Rights under development

Non-current Investment
■ Investments which are held not with the purpose to resell but to
retain them.
(i) Trade Investments: Investments made by the company in
shares or debentures of another company to promote its own
trade and business.
(ii) Other investments: Which are not trade investments.
Investments in property In equity shares
In preference shares In debentures
In mutual funds In partnership firms
In govt. securities
Deferred Tax Asset

■ A deferred tax asset comes into force when taxable income

is more than accounting income.
Long term Loans & Advances

■ Expected to be received back in cash or in kind (in the form of

an assets) after 12 months from the date of the balance sheet
(i) Capital Advances: Advances given for acquiring fixed assets
(ii) Security Deposits: Deposit for electricity, telephone etc given
for a period beyond 12 months.
(iii)Other loans and advances
Long term loan to employees
Long term advance to suppliers etc
Other Non-current Assets
■ Long term Trade Receivables - receivable 12 months from the
date of the balance sheet or after the operating cycle whichever
is later
■ Insurance claim receivable
■ Security Deposits – given for a long period (e.g, electricity)
CURRENT ASSET
■ Assets which are:—
(a) expected to be realised in, or is intended for sale or consumption in the
company’s normal operating cycle;
(b) it is held primarily for the purpose of trading;
(c) expected to be realised within twelve months after the reporting date;
or
(d) cash or cash equivalent unless it is restricted from being exchanged or
used to settle a liability for at least twelve months after the reporting date.
■ All other assets shall be classified as non-current.
Operating Cycle

■ An operating cycle is the time between the acquisition of

assets for processing and their realization in cash or cash
equivalents.
■ Where the normal operating cycle cannot be identified, it is
assumed to have a duration of twelve months.
Operating Cycle
Heads under Current Assets

■ Current investments
■ Inventories
■ Trade Receivables
■ Cash & cash equivalents
■ Short-term Loans & Advances
■ Other Current Assets
Current Investments
■ Those investments which are held to be converted into cash
within a short period, i.e. within 12 months from the date of
purchase of the investment.
Investments in partnership firms
In equity shares In preference shares
In debentures In mutual funds
In govt. securities Short Term Investment
Inventories
■ Refers to stock held for the purpose of trade in the normal
course of the business, i.e. for manufacturing or trading of
goods.
(i) Raw Materials
(ii) Work-in-Progress
(iii) Finished Goods
(iv) Stock-in-Trade (for goods acquired for trading)
(v) Stores and Spares
(vi) Loose Tools
Trade Receivable
■ Refers to the amount due on account of goods sold or services
rendered in the normal course of business.
■ Receivable within a period of 12 months
■ It includes:
Debtors
Bills Receivable
■ Allowances for bad & doubtful debts are Deducted
Cash and cash equivalents
■ Balances with banks (including bank deposits having a maturity
period of more than 3 months but not exceeding 12 months
from the date of the balance sheet)
Balances with banks
Cheques, drafts on hand
Cash in hand
Bank deposits with more than 12 months maturity (fixed
deposit)
Short-term loans and advances
■ Expected to be realised within 12 months from the B/S date or
within the operating cycles, if the operating cycle is more than
12 months.
■ Loans and advances to related parties
– Loans to directors or other officers of the company
■ Advances to employees & suppliers
■ Security deposits
Other current assets
Dividend receivable
Interest accrued on investments
Income receivable
Prepaid expenses
Advance tax
Contingent Liabilities and Capital
Commitments
(a) Contingent Liabilities –
i. Those liabilities which may or may not arise because they
are dependent on a happening in future.
A claim is filed against the company in a consumer court by
a customer. The court may hold the company at fault & may
impose penalty. It may happen otherwise also. Whether the
company has a liability or not is dependent on court order.
ii. It is not recorded in the books of accounts but is disclosed in
the Notes to Accounts for the information of the users.
Contingent Liabilities and Capital
Commitments
iii. Example of Contingent Liability
a. Claims against the company not acknowledged as debts
b. Bills receivable discounted from bank not yet due for
payment
c. Court cases, litigations & claims disputed by the company
d. Bank Guarantees
(b) Capital Commitments – Financial commitments due to activities
agreed by the company to be undertaken by it in future. (Uncalled
Liability)
Contingent Assets
■ Possible economic benefit that is dependent on the
occurrence or non-occurrence of an uncertain future event
that is out of the company’s control.
■ Example:
– A company involved in a legal case with the sheer
expectation to receive the compensation as the outcome
of the case is not yet known and the amount is yet to be
determined.
– Company A Ltd. has filed a lawsuit against Company B
Ltd. for infringing a patent case. If there is a good chance
that Company A Ltd. will win the case, it has a contingent
asset in this matter.
IMPAIRMENT LOSS
■ Impairment –
– Meaning - Loss of utility in the assets, hence it needs to be written
down as per conservatism concept.
– Events that trigger or indicate impairment – damage, technological
obsolescence, asset is suddenly used for alternative purpose,
adverse legal/administrative decision (Uber London), Cost incurred is
much larger than what was anticipated to acquire or build the asset,
future forecast projecting losses from asset
■ If an asset suffers economic impairment, the depreciated historical cost
of the asset should further be reduced by the amount of impairment loss
in order to improve the soundness of the balance sheet.
What is Impairment
Impairment Loss

Amount

Value in
the
Balance
Sheet

Fair Value Carrying Value