• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

New! BPP Books for ACCA September 2022 Exams are now available, get your discount code >>

Question 46 of bpp kit

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › Question 46 of bpp kit

  • This topic has 1 reply, 2 voices, and was last updated 5 months ago by f6ali.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • January 12, 2022 at 4:24 pm #645780
    hm1995
    • Topics: 39
    • Replies: 8
    • ☆

    How is the following statement is an indicator of impairment ? “the carrying amount of an entitys net assets is lower than the entitys number of shares in issue multiplied by its share price”

    January 13, 2022 at 1:57 pm #645887
    f6ali
    Moderator
    • Topics: 10
    • Replies: 342
    • ☆☆☆

    Net Assets = Assets – Liabilities = Equity

    In other words, the carrying value of net assets equals to the book value of Equity section of SOFP. Now, the market value of an entity’s total shares must at least equal the book value of total equity balance in SOFP. Generally speaking, the market capitalisation (total issued shares*share price), usually exceeds the book value of equity (Net assets). However, there could be occasions where share price may fall (for eg due to disappointing performance), resulting in reduced market capitalisation.

    If this reduction is so significant that the market value of shares falls below the book value of equity in SOFP, then it is an indication that the net assets are overstated. And by net assets we mean total assets are overstated, because liabilities usually remain same. Therefore, a reduction in market capitalisation is an indication of impairment.

    Hope this helps.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate

If you have benefited from OpenTuition please donate.

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • jingdong on Pensions (IAS 19) – Introduction – ACCA (SBR) lectures
  • jingdong on Pensions (IAS 19) – Example – ACCA (SBR) lectures
  • Joanne94 on The Management Accountant’s Profit Statement – Marginal Costing – ACCA Management Accounting (MA)
  • mannannagpal on Sources of data – ACCA Management Accounting (MA)
  • mannannagpal on Sources of data – ACCA Management Accounting (MA)

Copyright © 2022 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy