Quote:
Originally Posted by Slava
Is the reserve value being written down an impairment though? I thought it would be more like a marked-to-market situation? (Clearly this wasn't my favorite portion of the CFA curriculum!)
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Yup definitely an impairment.
Every year you have to do a ceiling test of your Reserve value (based on trailing prices) vs the Property & Equipment on your balance sheet. If you're reserve value is lower you need to write down the difference as an impairment on your earnings report, and you can't ever write it back up. If your reserve value increases and goes over the value of your P&E on your balance sheet you don't get to add that to your earnings.
Basically Reserve value must always be higher than or equal to your P&E or you have to take an impairment of the difference.
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