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Market Related Value of Assets

L

Lones

Member
In Chapter 19 it states that under FAS87 the market value of assets may be smoothed, taking values over a period of up to 5 years. How does this work?
 
MRVA example

Hi Lones

I believe that there is a degree of interpretation available here in the method that you choose, as long as it is systematic and consistent from year to year.

The way I have seen it done averages gains and losses over a five year period. This is done by using a straight line method of recognising 20% of the G/L each year. After 5 years the G/L for a particualr year has been fully incoporated into the MRV of Assets and falls away.

An example (From memory - so this formulation may not be 100% accurate but should give you a good enough idea (I would be extremely surprised if we were to be examined on the finer points of MRVA!):

Five year history of (G)/L (we are in year 1 now)

1 - (100)
2 - (150)
3 - 200
4 - (50)
5 - 400

Asset at year 1 = 600.

MR adjustment is

0.2 * (100) + 0.4 * (150) + 0.6 * 200 + 0.8 * (50) + 1 * 400 =

(20) + (60) + 120 + (40) + 400 = 400

MRVA = 600 + 400 = 1000.

Hope this helps

Olly
 
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