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Reviewed by Jul 30, 2021| Updated on
A write-up means an increase in the book value of an asset as its carrying value is higher than the fair market value. Generally, a write-up occurs when a company is being acquired, and the assets and liabilities of the company are being re-evaluated to fair market value under the M&A accounting method.
Write-ups also occur when the initial value of the asset is not recorded properly or when an initial write-down of the asset's value is very large.
Asset write-downs are the opposite of asset write-ups, and both are non-cash items.
Consider that Company X is ready to acquire Company Y for a deal worth Rs.2 crore. At this point, the book value of Company Y's net assets was Rs.1.4 crore. Before completing the deal, Company Y's assets must be marked-to-market to figure out the fair market value.
Upon evaluation, if the FMV is found to be Rs.1.7 crore, the raise in the book value will be Rs.30 lakh. This raise represents a write-up. The new FMV minus the sale price, Rs.30 lakh, is the goodwill as written in Company X's balance sheet.