Despite Brazilian standards, accounting records around the world have a concept that was not widely used in Brazil: fair value. The best definition of fair value is the value at which independent parties in a negotiation agree to carry out a transaction, without favoritism.Fair value is important for understanding that these parties are free in a negotiation. These parties make an agreement by carrying out the transaction voluntarily. There is no favoritism because, as the parties negotiate some asset, they only negotiate if they want to and, in theory, if all parties are satisfied.In a balance sheet without the concept of fair value, assets only depreciate, losing value over time. Investments in the financial market would stagnate, as they would not vary over time—and could even become devalued. And the real world does not work that way.When we talk about financial assets, the concept of fair value is even more important, because an entity may hold these assets for a considerable time without trading them. And during this period, they may undergo substantial changes in value.Law No. 6404/1973 did not have treatment that adequately addressed this. If an entity acquired financial assets worth R$ 1 million, and they had a rate of 10% per year, in one year this asset would be R$ 1.1 million. But what if there were a surprising appreciation of these assets and their fair value were, say, R$ 1.5 million?On the other hand, introducing the concept of fair value requires, when changes in value occur, a corresponding entry. For example, when a company sells its inventory of R$ 1,000.00 for R$ 1,500.00 and had expenses of R$ 200.00, there was a profit of R$ 300.00, right? If this profit remains in the company, it will remain in shareholders’ equity.And when there is an appreciation of an asset? Or a devaluation? In which part of the balance sheet should this be recorded?Present Value in EquityThe Present Value Adjustment (PVA) is a calculation used to demonstrate the current value of an asset or transaction in accounting records at the time of its publication, respecting the obligation created in 2007 by Law 11.638/2007 and the various standards published over the years.This adaptation serves to show investors and the market the current value of the company’s assets and debts.According to the CVM, the following items of a balance sheet must be adjusted to present value:- Information on fixed assets;- Inventories and warehouses;- Temporary investments in gold and shares;- Prepaid expenses and deferred income; and- Rights and obligations to be settled in goods and/or services.Present value is used to update the value of money over time, considering inflation, interest, and currency devaluation, for example. In addition, the uncertainties involving both the business’s assets and liabilities are considered. So much so that when it comes to cash inflows and outflows that effectively involve embedded implicit or explicit interest, the Present Value Adjustment must be made.Fair Value in EquityThe treatment of fair value adjustments with the equity valuation adjustments account occurs in the 3 most common situations in Brazilian accounting: in financial and equity instruments that the entity holds (debentures, shares, receivables, securities, and others), investment property, and assets used by the entity under operating or finance lease contracts.How does this happen? Consider the case of an investment at fair value. To illustrate, company “A” has an investment of 100 thousand, with interest income of 10% per year. It so happens that at the end of the period, the investment appreciated by 30%, reaching a value of 130 thousand.How will company “A” record this? It will increase the value of the investment from 100 thousand to 130 thousand. But this resource came from somewhere, and this additional amount must be recorded on the other side of the balance sheet (the resources side). So an account comes into existence in shareholders’ equity, the equity valuation adjustments account—where this difference from the appreciation of the investment will be recorded.A second example can be made from the measurement and valuation of an investment property. An investment property is a property that the entity does not use in its operating activities—it is generally held for investment purposes: it is held for appreciation and future sale, which may occur soon or may take several fiscal years (years). While this investment property remains under the entity’s control and is measured at fair value, any appreciation and devaluation must be measured in assets, with their respective corresponding entries in the equity valuation adjustments account.An example of this occurs when an entity owns or controls a 5-story office building. This building was purchased with the objective of selling it in the event of appreciation. If it was acquired for R$ 1 million and there was a devaluation of R$ 300 thousand, its value must be reduced in assets to R$ 700 thousand—at the same time, the equity valuation adjustments account must be debited (decreased) by R$ 300 thousand.Note that when speaking of an asset, it may belong to the company or not—and for this reason, we speak of ownership or control. But can there be control without ownership?Yes, because an asset can be used by an entity without the property effectively belonging to it. There are lease contracts, which may be operating leases (simple rental) or finance leases (a rental that gives the buyer the possibility of exercising the purchase option at the end of the contract). In transactions of this type, the object transacted may be a property, a machine, etc., but control of the asset remains with the party that uses the asset, the lessee. And in the same way as in the previous examples, any fluctuation in the fair value of the asset generates the need to take the effects of these variations to the equity valuation adjustment account. In this third example, there is an increase in value of R$ 60 thousand in the machines that are under leasing. Note that the financing does not change: what changes is the fair value of the asset – and this must be reflected in the equity valuation adjustment account.DepreciationDepreciation is the most relevant prepaid expense because the amounts involved are significant. It concerns the recognition that use and the passage of time can reduce the wealth-generating capacity of non-current assets.Thus, depreciation is the way to allocate the value of an asset used in the company's activities to the Income Statement as an expense.Consider the case of a computer. Over time, a series of factors, such as technological development, reduces its productive capacity. Keeping the computer in an entity's accounting records as an asset at the value for which it was acquired is not consistent. Depreciation allows this loss of productivity to be recognized.For the calculation of depreciation in general, we need the following calculations:X estimate the useful life of the asset in months or years;X determine the possibility of there being a value at the end of this useful life, which is called residual value; andX calculate the monthly depreciation amount based on the information obtained previously.The accounting treatment is a little different from other prepaid expenses due to the relevance of depreciation. Let us consider an example of a computer that was acquired for R$ 3,100.00. At this moment, the entry corresponding to the purchase of the asset is made:There is an outflow of R$ 3,100.00 from CASH and an inflow of R$ 3,100.00 into "Computer".Now suppose that this computer will have a useful life of five years, or 60 months, and that at the end of this period it is estimated that it will be resold for R$ 100.00, that is, the residual value is R$ 100.00. The last step is to calculate the monthly depreciation using the following formula:\[ \text{Monthly depreciation} = \frac{\text{Purchase Value - Residual Value}}{\text{Useful life in months}} \]\[ \text{Monthly depreciation} = \frac{3100 - 100}{60} = \text{50} \]This means that each month we must make an adjusting entry to reduce the value of the computer asset by R$ 50.00. By carrying out this procedure, at the end of 60 months the value of the computer on the balance sheet will have been reduced by R$ 3 thousand, leaving only the residual value of R$ 100.00.There is an outflow of R$ 50.00 from "Accumulated Depreciation" and an inflow of R$ 50.00 into "Depreciation Expense".Note that the credit entry for depreciation is different from other prepaid expenses, since it is not made directly by crediting Computer, but rather Accumulated Depreciation. Since the depreciation entry is made each month, Accumulated Depreciation will increase by R$ 50.00 each month. This amount represents 1.61% of the value of R$ 3,100.00, which represents the depreciation rate of Computer.The useful life of each item is recommended by Annex III of RFB Normative Instruction No. 1,700, of March 14, 2017. The table shows each type of existing item and its depreciation rate.How depreciation appears on the Balance SheetDepreciation is an asset reducer. The depreciation entry is:Credit: Fixed AssetsDebit: Depreciation Expense in IncomeDepreciation therefore affects the result for the period, subsequently affecting the value of retained earnings. It therefore "zeros out" the result for the period and transfers that result to Equity. If the profit is less than the depreciation expense, an "accumulated losses" amount will be carried to the balance sheet. When the company does not operate and generates only depreciation and expenses, all of this goes to income, even if it results in a loss at the end.Exercises1) (Fundação Getúlio Vargas - FGV - 2023) On 01/01/X0, a public-sector hospital acquired a vehicle for R$50,000 to use as an ambulance. The hospital estimated that it would use the ambulance for 3 years and then sell it for R$20,000. On 12/31/X0, after recognizing depreciation expense, the hospital revised the residual value of the ambulance and found that it could be sold for R$40,000 at the end of its useful life. Select the option that indicates the ambulance's depreciation expense on 12/31/X1.A) Zero.B) R$5,000.C) R$10,000.D) R$20,000.E) R$25,000.2) (Centro de Seleção e de Promoção de Eventos UnB - CESPE CEBRASPE - 2022) Depreciation will be interrupted when the asset is temporarily withdrawn from use. True or False?3) (Fundação Carlos Chagas - FCC - 2022) A public entity received from the supplier, on 09/01/2021, a new vehicle acquired for R$ 72,000.00. On that same date, the vehicle was put into use by the entity and its useful life and residual value were estimated, respectively, at 6 years and R$ 7,200.00. For the accounting record of the vehicle’s depreciation for the month of September 2021, calculated using the straight-line method, the entity made, in the Chart of Accounts Applied to the Public Sector, an entry toA) credit to an accounting account belonging to class 1 in the amount of R$ 900.00.B) debit to an accounting account belonging to class 1 in the amount of R$ 1,000.00.C) debit to an accounting account belonging to class 3 in the amount of R$ 1,000.00.D) credit to an accounting account belonging to class 3 in the amount of R$ 900.00.E) debit to an accounting account belonging to class 4 in the amount of R$ 1,000.00.4) (Getúlio Vargas Foundation - FGV - 2022) A public entity acquired equipment on 07/01/20x0 for use in a health unit. The value of the equipment was R$ 345,000.00, to be paid in three installments due in 60, 90, and 120 days, respectively. The cash value of the equipment would be R$ 300,000.00. The entity adopts the depreciation policy using the straight-line method and estimated a useful life of twelve years for the equipment, with a residual value of R$ 15,000.00. Based on the information in text 1 and the provisions of the MCASP regarding Accrual Accounting Procedures, the value of the annual depreciation quota for the equipment is equivalent to:A) R$ 23,750.00;B) R$ 25,000.00;C) R$ 26,875.00;D) R$ 27,500.00;E) R$ 28,750.00.5) (Foundation for Support to Unicentro Development - FAU UNICENTRO - 2022) Suppose that a Public Company acquired a machine to be used in paving the city's streets. The equipment was acquired on 03/02/2021 for the amount of R$ 660,000.00 and began operating the following day. The residual value of the machine, after its useful life, is R$ 120,000.00. The estimated useful life of the machine is 10 (ten) years. Indicate the net value of the asset in the Public Company's accounting, less accumulated depreciation, as of 12/31/2021:A) R$ 485,000.00.B) R$ 495,000.00.C) R$ 605,000.00.D) R$ 615,000.00.E) R$ 630,000.00.6) (Foundation for Support to Unicentro Development - FAU UNICENTRO - 2022) On 07/01/2021, the Municipal Government acquired a vehicle for use by the Municipal Department of Works. The amount paid for the asset was R$ 600,000.00. The vehicle began being used on the same day it was acquired. The useful life of the asset was calculated at 05 (five) years, and its depreciation is calculated using the straight-line method, that is, the depreciation amount is uniform throughout its useful life. The residual value of this asset at the end of its useful life was estimated at R$ 240,000.00. Considering the data presented, indicate the net book value of said asset in the trial balance prepared on 05/31/2022:A) R$ 250,000.00.B) R$ 294,000.00.C) R$ 330,000.00.D) R$ 490,000.00.E) R$ 534,000.00.Answer Key1) A2) Wrong3) A4) A5) D6) E
登录并加入对话
— 评论 0
, 反应 1
成为第一个发表评论的人