write-off

Examples of write-off in the following topics:

• Extraordinary Gains and Losses

  • Examples of extraordinary items are casualty losses, losses from expropriation of assets by a foreign government, gain on life insurance, gain or loss on the early extinguishment of debt, gain on troubled debt restructuring, and write-off of an intangible asset.
  • Write down and write off of receivables and inventory are not extraordinary, because they relate to normal business operational activities.They would be considered extraordinary, however, if they resulted from an Act of God (e.g., casualty loss arising from an earthquake) or governmental expropriation.

• Limitations of the Statement of Cash Flows

  • These non-cash transactions include depreciation or write-offs on bad debts or credit losses.

• Defining the Income Statement

  • It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes.

• Depreciation

  • Sum-of-years' digits is a depreciation method that results in a more accelerated write-off than straight line, but less than the declining-balance method.

• Defining Accounts Receivable

  • The second method is the direct write-off method.

• Understanding Future Stock Value

  • However, because of very common irregularities in balance sheets (due to things like goodwill, write-offs, discontinuations, etc. ) this ratio is not always a good indicator of the company's potential.

• Residual Dividend Model

• What Happens in Bankruptcy

  • Bankruptcy allows debtors to either reorganize and restructure debts or liquidate assets to be used to pay off creditors.
  • Municipalities' ability to re-write collective bargaining agreements is much greater than in a corporate Chapter 11 bankruptcy, and can trump state labor protections, allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times.
  • Bankruptcy under Chapter 11, 12, or 13 requires more complex reorganization, and involves allowing the debtor to keep some or all of his or her property and to use future earnings to pay off creditors.

• Trade-Off Consideration

  • Trade-off considerations are important because they take into account the cost and benefits of raising capital through debt or equity.
  • Therefore, a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing.
  • Another trade-off consideration to take into account is that the while interest payments can be written off, dividends on equity that the firm issues usually cannot.
  • Therefore, trade off considerations change from firm to firm as they impact capital structure.
  • Describe the balancing act between debt and equity for a company as described by the "trade-off" theory

• Loans and Loan Amortization

  • When paying off a debt, a portion of each payment is for interest while the remaining amount is applied towards the principal balance and amortized.
  • In order to pay off a loan, the debtor must pay off not only the principal but also the interest.
  • Since interest accrues on both the principal and previously accrued interest, paying off a loan can seem like a dance between paying off the principal fast enough to reduce the amount of interest without having huge payments.
  • After all, if the debtor had enough money and liquidity to pay off the loan instantly, s/he wouldn't have needed the loan.
  • In order to figure out how much to pay off to amortize each month, many lenders offer their debtors an amortization schedule.