Write-down of assets

When the market value of any asset has diminished for any reason, you should make a critical and unemotional evaluation and place a new and conservative value on that asset and write-down that asset on your financial records. In addition to inventory that may have become damaged or obsolete, you may also have aging accounts receivable that have become doubtful collections. These should also be write-down candidates.

A write-down is often associated with an accounting period change. For example, a write-down should be taken in the current fiscal year, and before the new fiscal year begins. The purpose is to begin the new accounting year with a more realistic, clean and accurate balance sheet.

When you're applying for a bank loan, it may be tempting to leave an under-performing asset on your balance sheet at original value, in order to boost assets and not lower earnings. But remember this: The only thing your banker dislikes more than a write-down is an overvalued asset. Taking a write-down is a demonstration of management discipline, which will impress your banker.