What Is Asset Recovery And Why It Is An Important Concept

What Is Asset Recovery

What Is Asset Recovery

In accounting terms, asset recovery refers to recognizing the value of those assets that were previously disposed of or impaired.

The asset recovery process reverses the previous entry to show the current recoverable amount of the asset or the sale value of the asset. There are two situations where asset recovery can occur.

Impairment: when an asset value declines and accounting entries are made as impairment loss but after sometimes the value of that asset increases again then impairment loss entry reverse and shows it as income or reduction in the impairment loss.

The second condition can be fraud, non-payment from customers, breaking of contracts, theft, and other misconduct.

It is very necessary to have knowledge and experience in recovering asset process otherwise it is not an easy task to find the right amount and asset that needs recovery.

Businesses of all sizes use this process to ensure and take benefit as much as possible from their resources.

Why Asset Recovery Is Important In A Business  

There are many reasons why asset recovery is important. Following are some core reasons for asset recovery:

  • Asset recovery helps in accurate valuation
  • It helps to manage the future risk
  • It helps to evaluate the financial performance
  • Asset recovery helps to record the gain and impairment loss for legal requirements, etc.

Asset recovery helps a business to make the financial statements accurately so the real worth of an asset can be found. Asset recovery provides stakeholders transparency by showing the fluctuation of the price of an asset.

Factors That Effects Asset Recovery

The following are the factors that can influence asset recovery:

  • Economic conditions such as inflation and deflation
  • Changing in technology
  • Changes in legal policies
  • Impairment loss
  • Gain or loss on disposal

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