Income Tax and Negative equity: Difference between pages
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imported>Charles Cresswell No edit summary |
imported>Doug Williamson (Add 2nd and 3rd definitions. Source: Corporate Finance Institute https://corporatefinanceinstitute.com/resources/knowledge/finance/negative-equity/) |
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( | 1. ''Net asset value - individual assets.'' | ||
In relation to individual assets, negative equity is the situation where the value of an asset is less then the amount of of a debt relating to it or secured on it. | |||
:<span style="color:#4B0082">'''''Example: Negative equity'''''</span> | |||
:A house is worth EUR 400k. | |||
:A borrowing of EUR 300k is secured by a mortgage over the house. | |||
:The net worth is the difference between the value of the the house (asset) EUR 400k and the borrowing (liability) EUR 300k | |||
:400k - 300k = EUR 100k | |||
:The Equity in the house is the difference between the current value, and any loans secured over it. | |||
:This is also EUR 100k. | |||
:If the value of the house falls to EUR 250k, the borrowing now exceeds the value of the asset. | |||
:This is 'negative equity' (of EUR 50k = 250k - 300k). | |||
2. ''Cumulative corporate losses.'' | |||
A situation where an organisation's total liabilities exceed its total assets. | |||
The balance sheet total is negative. | |||
This is normally a result of cumulative losses over a number of periods. | |||
3. ''Individual net worth.'' | |||
A situation where an individual's total liabilities exceed their total assets. | |||
== See also == | == See also == | ||
* [[ | * [[Assets]] | ||
* [[ | * [[Balance sheet]] | ||
* [[ | * [[Equity]] | ||
* [[ | * [[High net worth]] | ||
* [[ | * [[Liabilities]] | ||
* [[ | * [[Liabilities and equity]] | ||
* [[ | * [[Mortgage]] | ||
* [[ | * [[Net assets]] | ||
* [[Net worth]] | |||
* [[Share]] | |||
* [[Share capital]] | |||
* [[Shareholders’ funds]] | |||
[[Category: | [[Category:Accounting,_tax_and_regulation]] | ||
[[Category: | [[Category:The_business_context]] | ||
[[Category:Corporate_finance]] | |||
Revision as of 21:20, 20 March 2021
1. Net asset value - individual assets.
In relation to individual assets, negative equity is the situation where the value of an asset is less then the amount of of a debt relating to it or secured on it.
- Example: Negative equity
- A house is worth EUR 400k.
- A borrowing of EUR 300k is secured by a mortgage over the house.
- The net worth is the difference between the value of the the house (asset) EUR 400k and the borrowing (liability) EUR 300k
- 400k - 300k = EUR 100k
- The Equity in the house is the difference between the current value, and any loans secured over it.
- This is also EUR 100k.
- If the value of the house falls to EUR 250k, the borrowing now exceeds the value of the asset.
- This is 'negative equity' (of EUR 50k = 250k - 300k).
2. Cumulative corporate losses.
A situation where an organisation's total liabilities exceed its total assets.
The balance sheet total is negative.
This is normally a result of cumulative losses over a number of periods.
3. Individual net worth.
A situation where an individual's total liabilities exceed their total assets.
