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Appreciation, Depreciation, Impairment, Asset Revaluation
Definition, Usage, Meaning Explained, Examples

 

The market value of most automobiles depreciates over time as they move from the dealer showroom, to the highway, to the used-car lot. Exceptions are the in-demand classic or antique cars, which tend to appreciate over time

Companies must sometimes report that assets have gained or lost value.

What is the Business meaning of Appreciate?

In economics, finance, investing, and business in general, the terms appreciate and appreciation mean increasing value, almost always referring to the value of an asset.

  • A company can properly say that its real estate holdings (assets) are appreciating.
  • The firm cannot properly say that its debts (liabilities) are appreciating.

Accountants also describe appreciation as an increase in asset value, but they further qualify the definition. In accounting, not all gains in asset value qualify as appreciation. To accountants, appreciation is an increase in asset value that meets several conditions:

  • The new value is above the asset's depreciable cost.
  • Increasing value is due to market or other economic factors, such as increasing demand, or scarcity.
  • The value increase is not does not result from improving or adding to the asset. In a stagnant real estate market, for instance, a building's market value may increase when owners add additional rooms. That is not appreciation.

Other Meanings for Appreciate

Most people are also comfortable using the term more broadly when speaking outside of a business context. In non-business usage, of course, appreciate also means:

  • To be grateful.
    "I appreciate your help."
  • To be fully aware of something.
    "I appreciate the high risk in what we are doing."
  • To value highly .
    "We appreciate every penny we earn."

These latter meanings are absent in business discussions.

  • In business, appreciate means only to gain or to increase in value.
    "Property values in this neighborhood are appreciating at a high rate."

Explaining Appreciation in Context

This article further defines and illustrates appreciation and related terms as they appear in financial accounting and business generally. Terns such as the following have to do especially with the value of assets:

Appreciate
Depreciate
Depreciation Expense
Impairment
Return on Assets (ROA)
Return on Capital Employed
Balance Sheet
Asset Revaluation
Book Value
Carrying Value
Write Down
Residual / Salvage Value
Fair Value
Recoverable Value
Pricing Strategy
Mark to Market Rule
Lower of Cost or Market
Amortization Expense

 

Contents

Related Topics

  • For a complete overview of asset accounting, see the article Asset.
  • The article Write Off covers writing off Accounts receivable and Inventories in more depth.
  • The article Allowance for Doubtful Accounts explains the revaluation of Accounts Receivable.

 

What do Appreciation and Depreciation Mean in Business?

In general business usage, the term depreciate is more or less the opposite of appreciate. The term normally refers to a decrease in asset value. Like appreciate, the term depreciate has a broader meaning in general business usage but a more limited and specific meaning in accounting.

  • In general business usage, depreciate can refer broadly to any reduction in asset value.

    The market value of most automobiles, for example, is said to depreciate over time as they move from the dealer showroom, to the highway, to the used-car lot. Exceptions are the in-demand classic or antique cars, which tend to appreciate over time.

    It is sometimes said (rightly or wrongly) that "Buying a Ferrari or a Rolls Royce is always a sound investment because these cars do not depreciate. They only appreciate."
  • In accounting, not all reductions in asset market value are depreciation.

    In financial accounting, depreciation is a prescribed, planned, and standardized process for reducing the book value of certain classes of tangible assets, year by year, across their depreciable lives. The result is a depreciation expense that lowers reported income and creates a tax savings for owners (see the article Depreciation).

    Accountants also revalue asset values downward using other techniques. Asset book values may also become lower due to impairment. Impairment examples below include writing-off bad debt or devaluing inventory that becomes obsolete.

    In accounting, the opposite of appreciation is more properly designated as impairment (instead of depreciation).

Appreciation, Depreciation, Impairment, and Asset Revaluation in Financial Accounting

       Why Are Asset Values Important?

In private industry, company owners, investors, and management have a keen, ongoing interest in tracking the values of company assets. Asset values are key when evaluating a company's financial performance, financial position, and prospects for the future:

  • Profitability metrics such as Return on assets (ROA) and Return on capital employed (ROCE) measure the firm's ability to earn profits with its asset base.
  • Activity metrics such as Inventory turns, and Total asset turnover measure a company's ability to use assets efficiently.
  • The values of Current assets such as Accounts receivable and Inventories contribute to measures of company liquidity such as Working capital and the Current ratio.
  • Leverage metrics such as the Debt to assets ratio, or the Debt to equity ratio compare the funds supplied by lenders (liabilities) to the funds supplied by owners (equities). The comparison shows how lenders and owners share business risks and rewards.

These financial metrics are all, in essence, different ways of asking how effectively—or how successfully—the company is using its asset base.

  • Management relies on metrics for strategic decision making and for setting performance targets.
  • Investors rely on metrics for making buy and sell decisions.
  • Industry analysts use metrics for comparing companies and making recommendations.

The total book value (carrying value) in differentBalance sheet asset categories is central to all of the above metrics.

Reasons for Value Change Are Public Knowledge

Company management is sometimes believe they have to let shareholders and the public know specifically why the company's metrics have changed recently. And, this can mean they must explain why they are revaluing assets.

Here, for example, are a few lines from General Electric's 2013 Form 10-K (filed in February 2014):

"Property, plant and equipment totaled $68.8 billion at December 31, 2013, an increase of $0.2 billion from 2012, primarily reflecting an increase in machinery and equipment at GE, partially offset by a decrease in equipment leased to others principally at our GECAS aircraft leasing business.

This decrease included impairment losses on our operating lease portfolio of commercial aircraft of $0.7 billion and $0.2 billion in 2013 and 2012, respectively. Impairment losses in 2013 incorporated management’s downward revisions to cash flow estimates based upon shorter useful lives and lower aircraft residual values from those indicated by our third-party appraisers, reflecting the introduction of newer technology, fleet retirements and high fuel prices and operating costs."

Risks and Rewards of Asset Ownership Belong to Owners

The reason that G.E. gives for revaluing Property, plant and equipment is interesting. Referring to aircraft the company owns and leases to airlines, G.E. cites recent changes in operating conditions that impact asset value: estimated useful lives, fuel costs, and lower residual values. The original valuation appraisals were made before these changes.

Incidentally, this example also illustrates an important reason why some airlines prefer to lease rather than own the aircraft they fly. With a so-called operating lease, lessees (the airlines) have the right to use assets (aircraft), while the risks and rewards of ownership remain with the lessor (G.E. Capital).

How Do Accountants Revalue Assets?

Accountants define asset revaluation as the process of changing asset book values upwards or downwards, so as to report values more more realistically. Revaluation is the company's formal announcement that earlier asset values and metrics are no longer accurate or realistic.

Initial Asset Book Value

Assets receive initial book value (carrying value) when firms acquire them. Over time, of course, an asset's real value to the company can rise, as with appreciation, or fall as with impairment. Asset value might then be represented more realistically by:

  • The asset's current market value.
  • Its current replacement cost.
  • New estimates for useful life or residual value.
  • Its expected contribution to future earnings.
  • The judgment of a professional appraiser.

When it is Time to Revalue Assets

In any case, there may arise a substantial difference between asset value by these measures, on the one hand, and asset book value on the other hand. The discrepancy puts the company'sBalance sheet at odds with an important and universally recognized accounting imperative: financial accounting reports must be realistic, verifiable, and objective.

  • Asset values that are unrealistically high or low can produce a picture of earnings and financial position that can mislead owners, investors, and company decision makers.
  • Financial reports with values that are not verifiable or not objective will score poorly on credibility and trust with auditors, regulators, and investors.

In pursuit of realistic, verifiable, and objective reporting, therefore, accountants sometimes choose to revalue assets. The purpose of asset revaluation is to present:

  • More accurate financial metrics, such as return on assets, return on equity, or return on capital employed.
  • A basis for conserving funds to replace certain fixed assets when they reach the end of their economic lives or service lives. When a company uses a "Provision for depreciation" account, and when assets appreciate substantially, provisions based on historical cost figures may be unrealistically low.
  • A more accurate fair market value for assets that substantially appreciate after purchase. Asset categories most likely to appreciate substantially in this way include artistic assets (e.g., paintings), investments in corporate stock or other securities, and real estate (e.g., land and buildings).

Exercising Leeway in Revaluing

Additionally, a company may exercise available leeway in accounting standards so as to "shape" or "position' itself with owners, potential investors, potential business partners, or potential lenders. The company may revalue assets, as allowed, to:

  • Decrease the company's debt to equity ratio (leverage).
  • Facilitate the sale of assets.
  • Increase the possible borrowing ceiling possible with lenders.
  • Improve the terms for internal or external reconstruction.
  • Improve the company's negotiating position before merger or acquisition by another company.

Are Depreciation Expense and Amortization Expense "Revaluation?"

The book value of most fixed assets is routinely reduced, annually, by depreciation expense. Depreciation is a prescribed, planned, and standardized process for reducing book value of certain tangible assets, year by year, across their depreciable lives. The result is lower reported income and a tax savings for owners (for more on this subject, see the article Depreciation). Depreciation expense normally takes the asset book value from it's initial value, down to a residual value (salvage value), or down to 0.

A similar process called amortization applies to the values of so-called definite intangible assets, that is, intangible assets that have a limited life, such as the purchased right to use a patent for a specific time period (see the article Amortization).

Amortization and depreciation (in the accounting sense) change the book value of assets, but they are not considered revaluation. Depreciation and amortization expenses are based on the idea that these assets have a limited useful life, during which their value is "used up" or "depleted."

It is nevertheless possible for assets undergoing depreciation or amortization to be revalued as well. When this occurs, depreciation or amortization continues, using the remainder of the depreciable life to bring the (new) book value down to the (new) residual value (see Revaluation example 3, below, for an illustrated instance).

Appreciation, Depreciation, Asset Revaluation, Impairment in Accounting

Revaluation examples below show revaluation principles at work. Examples and to show a few ways revaluation can impact the accounting system. This article is not meant as a comprehensive or universal guide to asset management, revaluation accounting, or accounting standards.

In reviewing the examples below, remember that appropriate accounting method for a given setting can differ from what is shown here, depending on factors such as:

  • The asset category.
  • The reasons for acquiring and holding the asset.
  • The methods by which the asset was capitalized.
  • The year of acquisition.
  • The reporting jurisdiction (country in which assets reported)

The Global Trend Toward Uniform Accounting Standards

On one hand, there is a global trend towards a single set of internal accounting standards. As of early 2015, accounting in 125 or more countries conform follows more or less closely standards issued by the International Accounting Standards Board (IASB) and its oversight body, the International Financial Reporting standards Foundation (IFRS). Their International standards reports appear in numbered series, such as IAS Standards 1 through 41 (1975-2003) and the current series, IFRS 1 through 15 (starting in 2003), The standard IAS-16, for example outlines a revaluation model for adjusting asset the book values of fixed assets upwards and downwards.

On the other hand, globalization is by no means complete, and many nations issue their own ammendments and qualifications to the IFRS standards. For example, fixed assets reported in the United Kingdom, Australia, India and many other countries can be revalued upwards or downwards, as provided by IAS-16. In the United States, however, the US Federal Accounting Standards Board (FASB) prohibits fixed-asset revaluation upwards.

In brief, asset revaluation calls for a thorough and detailed knowledge of country-specific GAAP (Generally Accepted Accounting Principles), country-specific regulatory requirements, and country-specific tax laws.

Revaluation Example 1
Writing Down Inventory

Inventories are normally reported under theBalance sheet category Current assets. Retail businesses report merchandise inventory, while manufacturing companies typically further classify inventory assets as either raw materials, work in progress, or finished goods (for more on this subject, see the article Inventory). In any case, inventory value is initially reported at cost, but inventory value can change upwards due to appreciation or downwards due to impairment (spoilage, theft, obsolescence, or general reduction in market demand).

Writing Down inventory at Blackberry

In December 2012, for instance, Research in Motion (RIM) of Canada took a write down of $485 million on its inventory of unsold Blackberry Playbook tablet computers. This was an unavoidable recognition by RIM (Now renamed Blackberry) that the tablets in stock would never bring in enough sales revenues to earn the value originally appearing on theBalance sheet. In this case, the realizable market value of the tablets held dropped below the company's Cost of goods sold (COGS). in brief, RIM's inventory revaluation resulted when management declared impairment.

RIM"s write down was large and unusual, but the loss nevertheless did not qualify as an "Extraordinary" loss. Accounting standards bodies view losses of this kind as "ordinary" because they do occur from time to time in the industries in which RIM operates. It is important to note, however, that inventory revaluation in smaller increments can occur every reporting period for companies that apply the Lower of Cost or Market Rule (LCM Rule) to inventory valuation.

Registering Inventory Impairment in the Accounting System

Inventory impairment (loss) is normally registered in the accounting system with transactions such as these:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
30-Jun-20YY
30-Jun-20YY
 NNN  Loss on inventory
 NNN      Inventory
$100,000  
$100,000

"Loss on Inventory" is an expense account, for which a debit increases account balance. "Inventory" is an asset account, for which a Credit decreases account balance. If the loss was due to application of the LCM rule, the "Loss on inventory" account might be designated as "Loss on inventory due to LCM."

Inventory Write Down Impact on Financial Statements

Income Statement I/S Impact

"Loss on inventory" is an expense category account. The impairment loss can appear on the I/S, either as a component of "Cost of Goods sold," above Gross profit, or the same loss expense can appear after Gross profit, under Operating expenses. For very large write downs (such as the RIM example), the impairment will more likely appear under Operating expenses.

Balance sheet B/S Impact

The "Inventory" account debited above is an asset category account, appearing directly on theBalance sheet. TheBalance sheet figure reported at period end reflects the adjustment downward (credit) shown above.

Statement of changes in financial position SCFP impact

"Loss on inventory" appears with other non-cash expenses on the SCFP under "Sources of cash," serving ultimately to lower reported cash inflows.

Revaluation Example 2
Writing Off Account Receivable

Accounts receivable is another current asset that can suffer impairment and require revaluation. Accounts receivable assets lose value when it becomes clear that certain customers are not going to pay for goods or services they have purchased.

Creating an Account Receivable

Consider, for instance, a manufacturer selling goods to another company. In this case, the seller delivers goods to the buyer, along with a $137,000 invoice. When the sale closes, the seller can recognize sales revenues and new value in Accounts receivable as shown:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
30-Jun-20YY
30-Jun-20YY
 NNN  Accounts receivable
 NNN      Sales revenues
$137,000  
$137,000

The seller, Grande Corporation, debits (increases) an asset category account, Accounts receivable, by the sale price, $137,000. At the same time, Grande credits (increases) a revenue category account, Sales revenue, by the same amount.

The Life of the Creditor-Debtor Relationship

While the bill is unpaid, seller and buyer have a creditor-debtor relationship The seller holds $137,000 in Accounts receivable and the buyer carries an additional $137,000 in its own Accounts payable—a Current liability account for the buyer. What happens next depends on whether or not the buyer actually pays:

If the buyer pays the invoice with cash, the seller retains the $137,000 asset value by moving it from one asset account to another. Here, the seller debits (increases) a Cash account and credits (decreases) Accounts receivable:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
30-Jun-20YY
30-Jun-20YY
 NNN  Cash
 NNN      Accounts receivable
$137,000  
$137,000

What Happens If the Buyer Never Pays

For this example case, however, assume the buyer does not pay the invoice. Instead, this buyer declares bankruptcy and goes into liquidation. The buyer informs the seller, moreover, that asset liquidation will not produce funds to cover outstanding debts. As a result, the seller concludes that the buyer will never pay the outstanding $137,000.

In such cases, the buyer can begin the write-off process by recognizing a Bad debt expense and an Allowance for doubtful accounts, as shown:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
30-Aug-20YY
30-Aug-20YY
 NNN  Bad debt expense
 NNN       Allowance for doubtful accounts
$137,000  
$137,000

Here, Bad debt expense account balance increases with a debit transaction. "Allowance for doubtful accounts is an asset category account, but it is also a contra asset account.  This account's value thus increases with a credit (opposite to the impact in a normal asset account).

Before the end of the accounting period, the seller completes the revaluation and write off process by lowering (crediting) the Accounts receivable balance, reflecting the new reality:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
30-Sep-20YY
30-Sep-20YY
 NNN  Allowance for doubtful accounts
 NNN      Accounts Receivable
$137,000  
$137,000

Accounts Receivable Write Down and Bad Debt Expense on Financial Statements

Remember finally, that the seller increases a Sales revenue account (credits) when the original sale closes.

Later, however, it is natural to ask the obvious question: Is not the seller overstating sales revenues now, considering that $137,000 in Accounts receivable will never appear? Non payment notwitsthanding, however, the end-of-period Sales revenue figure stands as written. The seller has earned these revenues, after all, regardless of whether or not the buyer ever pays.

The write down, however, will impact financial statements through Allowance for doubtful accounts and Accounts receivable accounts as follows:

Income Statement I/S Impact

On the I/S, "Bad Debt Expense" appears with expense items under "Operating expenses, " where the expense results in lower reports for operating profit and bottom-line net profit.

Balance Sheet B/S Impact

The Balance sheet account "Accounts receivable increases with a debit when the original sale closes. And, the Inventory account debit above is an asset category account, appearing directly on theBalance sheet. TheBalance sheet figure reported at period end reflects the adjustment downward (credit) shown above.

Statement of Changes in Financial Position SCFP Impact

"Bad debt expense" appears on the SCFP along with other non-cash expenses under "Sources of Cash," serving ultimately to lower reported cash inflows.

Revaluation Example 3
Impairment of Capital Fixed Asset

Accounting standards in most places mandate that companies revalue fixed assets when they lose value due to impairment, as in the GE example above. Fixed asset revaluation can be complex issue, however, because the process sometimes calls for recalculation or estimation of factors such as future depreciation, amortization, carrying value, recoverable value, salvage value, or cash flow contributions to operations.

Recognizing Impairment

Consider, for instance, the experience of Grande Corporation, illustrating the general rule that impairment is to be recognized when asset carrying value is greater than asset recoverable value:

  • Grand Corporation purchased an office building on 1 January 2004, for $3,800,000. For capitalization of a building asset, the initial book value (historical cost) may include besides purchase price, other direct costs of acquisition, such as the $100,000 that Grande paid for site improvements and renovation, plus another $100,000 for professional services (lawyers, architects, and building contractors). This building was therefore capitalized at acquisition with an initial book value of $4,000,000.
  • The building's useful life was estimated to extend to 31 December 2024 (a 20-year life). Salvage value after 20 years was estimated to be negligible (0). Initial depreciable value was therefore the same as the initial carrying value. Straight line depreciation was planned for a 20-year depreciable life.
  • On December 31, 2009, after five years in service, the city government started highway renovation projects that resulted in reduced access to the building and reduced space for employee parking, which lowered building value.

Calculations to Answer Impairment Questions

Can Grande Corporation now declare impairment and lower the building's carrying value? If so, by how much? To answer these questions, the company must calculate (estimate) six figures:

Estimate 1. Current Carrying Value

The building's initial depreciable value of $4,000,000 was to be depreciated with straight line depreciation over 20 years. Depreciation expense each year was thus $4,000,000 / 20 = $200,000. At the end of 2009, after 5 years of depreciation, total accumulated depreciation was 5 x $200,000 = $1,000,000. Current carrying value was therefore the initial carrying value less accumulated depreciation:
$4,000,000 – $1,000,000 = $3,000,000.

Estimate 2. Fair Value (Less Selling Costs)

After the actions of city government, Grande Corporation estimated that it could now sell the building for no more than $2,000,000, and further that he costs of making it salable and selling it would include another $100,000. The building's fair value less selling costs is thus $2,000,000 – $100,000 = $1,900,000.

Estimate 3. Value in Use

Grande Corporation estimates that if it continues to own and operate the building for the rest of its useful life, the building will help in generating cash flows with a present value of $2,400,000.

Estimate 4. Recoverable value

Owners can now take Recoverable value as the higher of the two figures immediately above, that is, the higher of "Fair value less selling costs" or "Value in use." From the examples above, recoverable value is thus $2,400,000.

Estimate 5. Impairment Value

Grande Corporation can in this case now report an impairment loss calculated as carrying value less recoverable value, that is, 3,000,000 – $2,400,000 = $600,000.

Estimate 6. Post-impairment depreciation expense

After recognizing impairment, the remaining depreciable value is now the previous carrying value less impairment, that is, $3,000,000 – $600,000 = $2,400,000. With straight line depreciation for the remaining 15 years of useful life, annual depreciation expense is now $2,400,000 /15 = $160,000. Note that the pre-impairment annual depreciation expense was $200,000

Transactions to Register Impairment

Grand Corporation registers the impairment with transactions such as these:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
30-Sep-20YY
30-Sep-20YY
 NNN Impairment loss expense
 NNN     ¬†Accumulated depreciation
$600,000

 
$600,000

Impairment loss expense is an expense account, for which a debit increases value. Accumulated depreciation is a contra asset account, for which a credit also increases value (opposite to the credit impact in a normal asset account).

The Impact of Fixed Asset Impairment on Financial Statements

Income Statement I/S Impact

On the I/S, "Impairment loss expense" can appear with expense items under "Operating expenses, " lower reported operating profit and bottom-line net profit.

Straight line depreciation will continue for the remaining 15 years of useful life, creating depreciation expense each year on the I/S. The new annual depreciation expense of $160,000 will be appear each year instead of the previously applied $200,000 annual expense.

Balance sheet B/S Impact

When impairment is declared with the transactions above, the newBalance sheet carrying value of the asset is taken as the previous carrying value less impairment. Here, this asset's contribution to total Fixed Assets (or to Property Plant and Equipment) is $3,000,000 – $600,000 = $2,400,000.

Straight line depreciation will continue for the remaining 15 years of useful life, increasing Balance Sheet Accumulated depreciation by the new annual depreciation expense ($160,000).

Statement of changes in financial position SCFP impact

Depreciation expense appears each year along with other non cash expenses on the SCFP under "Sources of Cash," serving ultimately to lower reported cash inflows.

Revaluation Example 4
Marketable Securities Appreciation

Companies in all industries sometimes hold as investments the financial securities issued by other companies. Among these holdings, marketable securities are defined as securities for which (a) there is an accessible, active market, and (b) the company intends to sell, or may sell, when it is advantageous to do so.

The example below illustrates appreciation and revaluation for one class of marketable securities, Trading securities. Trading securities may be either equity or debt securities, assumed to be held for short-term gains. Trading security portfolios are typically characterized by frequent, active buying and selling for the purpose of making profit. Not surprisingly, trading securities thus are carried on the Balance sheet as current assets.

Exercising the Mark to Market Rule

For this example, assume that the owner, Grande Corporation, has chosen to value its trading securities holdings through the Mark to Market Rule. Grande chooses Mark to Market instead of its other option, the Lower of Cost or Market Rule.

Trading securities first enter the accounting system in a Balance sheet assets account where they are valued just as most other assets are initially valued—at acquisition cost. For a $100,000 acquisition of equity securities purchased with cash, and to be held as trading securities, the acquisition transactions could be as follows.

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
15-Nov-YY
15-Nov-YY
 NNN  Marketable securities      
 NNN     Cash on hand
$100,000

 
$100,000

Note that the acquisition occurs in the middle of a reporting period, Q4 FY 20YY. At acquisition, the Grande debits (increases) the Current asset account Marketable securities, while crediting (decreasing) another Current asset account, Cash on hand.

Now assume that the market value of these securities increases by $5,000 by end of the quarterly reporting period. Under the Mark to market rule, the firm will recognize appreciation and revaluation with two more transactions at the end of Q4:

Grande Corporation
Journal for Fiscal Year 20YY
Date Account Debit
Credit
31-Dec-YY
31-Dec-YY
 NNN  Marketable securities      
 NNN     Unrealized holding gain
$5,000  
$5,000

The two transactions above complete the revaluation process. "Marketable securities" is a Current asset account, for which a debit increases value. Unrealized holding gains is an equity account, which increases with a credit transaction.

The Impact of Marketable Securities Appreciation on Financial Statements

Income statement I/S Impact

The revaluation transactions illustrated above have no impact on revenue or expense accounts, and thus no impact on the I/S.

Balance sheet B/S Impact

Both transactions above impact the twoBalance sheet accounts given, "Marketable securities" and "Unrealized holding gain."

Statement of changes in financial position SCFP impact

The revaluation transactions appearing above have no impact on revenue or expense accounts, and thus no impact on the SCFP. The impact on the SCFP will occur later time, however, if the owners sell the securities for cash. In that case, owners can now realize the gain, and the SCFP will register the cash flow.

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