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What is a Write-Up
BREAKING DOWN Write-Up
Example of a Write-Up
Write-Up
A write-up is an increase made to the book
value of an asset because its carrying value
is less than fair market value. A write-up
generally occurs if a company is being
acquired and its assets and liabilities are
restated to fair market value, under the
purchase method of M&A accounting. It may
also occur if the initial value of the asset was
not recorded properly, or if an earlier write-
down in its value was too large. An asset
write-up is the opposite of a write-down, and
both are non-cash items.
Because a write-up impacts the balance
sheet, the financial press does not report on
more mundane instances of businesses
initiating a write-up of asset values. In
contrast, sizable write-downs do spark
investor interest and make for better news
cycles.
Whereas a write-down is generally
considered a red flag; a write-up is not
considered a positive harbinger of future
business prospects — since they're generally
a one-time event.
During an asset write-up, special treatment
for intangible assets and tax effects are
considered. With an asset write-up, a
deferred tax liability is generated from
additional (future) depreciation expense.
For example, assume Company A is
acquiring Company B for $100 million, at
which point the book value of Company B's
net assets was $60 million. Before the
acquisition can be completed, Company B's
assets and liabilities have to be marked-to-
market to determine their fair market value
(FMV) .
If the FMV of Company B's assets is
determined to be $85 million, the increase in
their book value of $25 million represents a
write-up. The difference of $15 million
between the FMV of Company B's assets
and the purchase price of $100 million, is
booked as goodwill on Company A's balance
sheet .
Related Terms
Write-Down
A write-down is the book value of assets
whose fair market value has fallen below the
book value, and thus becomes an impaired
asset. more
Inventory Write-Off
An inventory write-off is an accounting term
for the formal recognition that a portion of a
company's inventory no longer has value.
more
Why Goodwill Is Unlike All the
Other Intangible Assets
Goodwill is an intangible asset associated
with the purchase of one company by
another. Specifically, goodwill is recorded in
a situation in which the purchase price is
higher than the sum of the fair value of
assets less fair value of liabilities. more
What the Price-To-Book Ratio –
P/B Ratio Tells You?
Companies use the price-to-book ratio (P/B
ratio) to compare a firm's market to book
value and is defined by dividing price per
share by book value per share. more
Write Out
Write out is the process describing a dual-
trade transaction involving a specialist and a
floor trader for an individual stock issue.
more
Write-Off
A write-off is a reduction in the value of an
asset or earnings by the amount of an
expense or loss.