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Valuation Allowances or Contra Accounts
ОглавлениеValuation allowances are used to reduce or increase the carrying amounts of certain assets and liabilities. Accumulated depreciation reduces the carrying value of property, plant, and equipment, and a bond premium (discount) increases (decreases) the face value of a bond payable as shown in the following illustration.
Example—Valuation Allowances or Contra Accounts
| Equipment | $18,000,000 | |
| Less accumulated depreciation | (1,625,000) | $16,375,000 |
| Bonds payable | $20,000,000 | |
| Less discount on bonds payable | (1,300,000) | $18,700,000 |
| Bonds payable | $20,000,000 | |
| Add premium on bonds payable | 1,300,000 | $21,300,000 |
