Hi guys, Just ended Study Session 9 (finally…still a [too] long way to go) and remarked that I do not understand what is the Valuation allowance. Can someone help me on this subject? (no so precise right now because I am at work…I will put the page tonight, european time) Thx Paul PS: only 2 months & 3 books to go…Hope I will have enough time - feel very stressed.
As I understand it valuation allowance is a contra-account to an asset account which corrects the valuation of a specific asset. If there are objectives that company will not be able to take advantage of future benefits of the asset than it must be adjusted downward and VA records all changes in that respect. It is possible to revert previously made allowance (as I understand correctly under US GAAP only to the amount of historical cost. i.e. no possibility to adjust asset upward exosts).
Good thing for an analyst to check out due to “going concern” impact. If there is a large valuation allowance one must be concerned about why management is uncertain about future benefit.