Question

Explain the effect of an asset impairment on the financial statements

Explain why companies invest in other companies

Answer 1

Solution. For the first given question, we will first define asset impairment, when estimated future cash flow from an asset lowers than the invested amount we write it off as asset impairment loss value. Such amount is transferred under set regulations to balance sheet of the organization. We determine impairment loss value by deducting asset's fair value to future cash flow value. Such value gets reflected on organization's income statement and thereby, diminishing profit value. And the above determined value of impaired asset is shown on the balance sheet report during an accounting period. So, we can conclude, asset impairment has a diminishing effect on the financial statements of an organization.

For the second given question, companies can invest in other company with any one or multiple intention. It can invest in other company to get an access to new competitive economic product line market, to understand the market situations, customer's buying behavior, survival strategies. To buy other company's profit making shares. To invest their available capital in hand at securities like bonds and others. To enter into partnership to help raise capital and share profit margin. To facilitate other company people by sharing his expertise in decision making activities. Or to simply explore, expand or grow in global business market.