What is the Mark-to-Market?

Mark-to-Market is an accounting system designed to deal with the problem of asset valuation that is not of fixed price. This makes the current market value of the asset in an effort to take into account the potential gains or losses that the holder has reached on the asset. The main disadvantage of the system is that short -term market fluctuations may mean that it does not give a fair representation of the long -term value of the asset. This is where people exchange the right to buy shares in the future rather than exchange real shares. However, the market can be used technically for any type of asset. For example, a company can own a share of shares for which it has paid $ 100 (USD). Without accounting on the market on the market, the Aktivlontinue would be launched in its balance sheet for $ 100 until the company sells shares.

If shares now have a value of only $ 10, accounts would provide too positive picture of the company's value. This will not change much with shares worth $ 100, but in companiesA, which has hundreds of millions of assets, it can mean a big difference, maybe even get a business to appear a solvent when it could not cover their debts by selling assets. Of course, the effect works the other way around: a company whose assets have increased in market value would seem much worse if it did not use the Mark-To-Market.

There are three types of market awards in the United States system. The first level is for actively traded assets, such as stocks, and simply uses the current market price. The second level is for assets that do not have a market price, but it is possible to use a standard model for Themes based on wider market changes, such as stock performance in similar industries. Level three is for assets that have no market indicators, which means that accountants must simply guess the current value of the asset. Critics believe it creates some characters that actually have too little.

Another problem of the Market-to-Market market is that it can place too much emphasis on KRAttacked swings on the market. The company can hold assets that it considers a long -term investment and does not have to sell them in the near future. However, Mark-to-Market accounting means that if the asset market is undergoing immersion, the company seems to have lost money in its accounts. There is an argument that such appearances can cause supplies in the society itself, which contributes to even wild fluctuations in the overall market.