Investment Recovery: Understanding The Book Value Vs. Fair Market Value Of An Asset

Abstract

This case is based on a real life conversation between CPA Dave Richards and business owner John Stevenson. John has run across a situation with his business in which he has a discrepancy between what he feels an asset is worth and with what a company has the asset valued on the books. The manager of the company does not want to sell an unused asset because he does not want the loss on the equipment to impact his division’s performance this period. Students get to listen along as Dave and John discuss the issues. This case introduces students to the accounting for capital assets, sales of used equipment and the tax consequences of selling equipment. Students are introduced to John Stevenson and Dave Richards as they discuss an issue John Stevenson has come across in his investment recovery business. Students are exposed to capital asset accounting and valuation from both a Generally Accepted Accounting Principles view and from a general businessman’s view. The case also covers an issue of goal conflict and goal congruence with respect to the company who currently owns the asset. This case is targeted for students in an MBA course who are not accounting majors. The case may be used as an in class discussion mechanism or assigned as a take home project. The case can be discussed fully within a one hour class if students have pre-prepared for the case. Students should expect to spend about 1 hours of preparation time outside of class.