Write-Up

What Is a Write-Up?

A write-up is an increase made to the book value of an asset in light of the fact that its carrying value is not exactly fair market value. A write-up generally happens in the event that a company is being acquired and its assets and liabilities are rehashed to fair market value, under the purchase method of M&A accounting. It might likewise happen in the event that the initial value of the asset was not recorded as expected, or on the other hand if a prior write-down in its value was too large. An asset write-up is something contrary to a write-down, and both are non-cash things.

Understanding Write-Ups

Since a write-up influences the balance sheet, the financial press doesn't report on additional everyday occasions of businesses starting a write-up of asset values. Conversely, sizable write-downs in all actuality do spark investor interest and make for better patterns of media reporting.

Though a write-down is generally considered a red banner; a write-up isn't considered a positive harbinger of future business possibilities — since they're generally a one-time event.

During an asset write-up, special treatment for immaterial assets and tax effects are considered. With an asset write-up, the deferred tax liability is produced from extra (future) depreciation expense.

Illustration of a Write-Up

For instance, expect Company An is gaining 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 must be set apart to-market to decide their fair market value (FMV).

In the event that the FMV of Company B's still up in the air to be $85 million, the increase in their book value of $25 million addresses 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.