Writedowns vs. profits

[jonojpsg]

A quick question - if a company has to write down asset values in a financial year as many property companies have had to do last year this transfers to their profit/loss.

If those property values then increase next financial year does that mean they will report a much increased profit?

If so, and assuming the credit crunch eases before June 09 , one would imagine that many companies will be reporting much improved profits next year as values rebound.

 

[Fleeta]

Re: Writedowns vs profits

The magical world of accounting standards mean that write-downs go to the P&L, but revaluations will go to an asset revaluation reserve - so won't hit profit - although it depends on the companies accounting policies - but this will be the case most of the time.

You are of course assuming that valuations will return to the old levels. Isn't it the case that many of these write-downs are on projects that were basically not profitable in the first place and hence this lost money really is lost money.

They don't call it impairment for nothing...