Question for accountants or finance folks.

[MaxDepth]

What is a write down and how is that loss accounted for really?

I was reading Deutsche Bank Writes Down $3.1 Billion

 

[KLin]

A write-down is a form of depreciation that involves a partial write off. Part of the value of the asset is removed from the balance sheet. The reason may be that the book value (accounted value) of the fixed asset has diverged from the market value and causes the company a loss. An example of this would be a revaluation of goodwill on an acquisition that went bad.

http://en.wikipedia.org/wiki/Depreciation under the recording depreciation section.

 

[Ns1]

Basically those loans are recorded as assets on DB's books. So if they had 10bn in loans it would be on their books as 10bn loan receivable. Now due to this subprime mess, if they only expect to receive 6.9bn, they have to record that 3.1bn loss. Or rather, they have to 'write down' that asset

 

[MaxDepth]

Thanks. Reading it (before my eyes glazed over), I think I can follow what the article is saying.

Basically, Deutsche Bank has a lot of mortgages they consider assets. They considered the collection to have a value of let's say 10 billion dollars. Because there were so many defaults and foreclosures on the sub prime mortgages, they only have the paper value of the property (if that) and not what the bank would have made on the terms of the loan.

So now Deutsche Bank has all these worthless mortgages $0 and only property value (if they can sell it). Which means the assets are now less in value by their estimation of 3.1 billion. So if anyone was running a fund that tied directly to this asset collection, their value too has been reduced. So if it is now 7/10ths the previous value, the fund too would only be valued at 7/10ths, right? So if I put in $100 in this fund, I've lost $30 because it being devalued.

Right?
(This is why I need an accountant. Math is hard!)

 

[Ns1]

Originally posted by: MaxDepth
Thanks. Reading it (before my eyes glazed over), I think I can follow what the article is saying.

Basically, Deutsche Bank has a lot of mortgages they consider assets. They considered the collection to have a value of let's say 10 billion dollars. Because there were so many defaults and foreclosures on the sub prime mortgages, they only have the paper value of the property (if that) and not what the bank would have made on the terms of the loan.

So now Deutsche Bank has all these worthless mortgages $0 and only property value (if they can sell it). Which means the assets are now less in value by their estimation of 3.1 billion. So if anyone was running a fund that tied directly to this asset collection, their value too has been reduced. So if it is now 7/10ths the previous value, the fund too would only be valued at 7/10ths, right? So if I put in $100 in this fund, I've lost $30 because it being devalued.

Right?
(This is why I need an accountant. Math is hard!)

I have no idea what you're trying to say here, and this has nothing to do with funds. Only the assets on DB's books.

 

[JS80]

DR expense
CR asset

They are flowing asset from the balance sheet to expense on income statement.