In the case of a fair value decrease, how is the fair value adjustment line treated?

When a fair value decrease occurs, it indicates that the value of an asset has declined relative to its previous carrying amount. This fair value adjustment is recognized in the financial statements as a reduction in the value of the asset or net assets.

The rationale behind treating the fair value adjustment as a negative entry in net assets lies in the principle of reflecting the true financial position of the entity. By decreasing the asset's value, the financial statements provide a more accurate representation of the entity's worth, ensuring that users have a clear understanding of the current economic reality.

This adjustment directly impacts the equity section of the balance sheet by reducing revaluation surplus or directly reducing retained earnings, thereby increasing transparency about the financial health of the organization. It's essential for stakeholders to see such adjustments as they could influence their decision-making regarding the entity's performance and financial stability.

In this context, the other options do not accurately reflect the treatment of the fair value adjustment in the case of a decrease. Treating the fair value adjustment as a positive entry or as an addition to goodwill would misrepresent the financial position, while ignoring it altogether would lead to a lack of transparency in financial reporting. Thus, recognizing it as a negative entry in net assets is vital for producing reliable financial statements.