Above Water

Posted in Finance, Accounting and Economics Terms, Total Reads: 159
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Definition: Above Water

Above water is when the market value of an asset appreciates more than its book value. Since the market value becomes more than the book value we say that it’s an above water situation.


For example if a manufacturing company buys land worth $1,000,000 for its new factory, then this value of $1,000,000 is recorded as the book value of the land. If in the next two years the value of the land depreciated to $800,000 then this becomes the market value of the land as the book value was already recorded. Now if after another two years the value of the land appreciates and becomes $1,500,000 then this will be the new market value of the land.


If the company now sells the land then it is at ‘above water’ situation because it will make a profit of $500,000. Therefore if the market value of an asset is more than its book value (the value at which it was bought) then it is an above water situation.

 

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