Mark-to-market (MTM) is an accounting method whereby assets and liabilities are recorded at their current market value. This approach provides a realistic appraisal of an entity's financial situation by showing the real-time value of its assets and liabilities. Here are the key points:

1.     Definition:

o   MTM involves recording the value of assets and liabilities based on their current market price rather than their historical cost.

2.     Purpose:

o   The goal is to provide a more accurate and up-to-date reflection of a company’s financial condition.

o   It ensures that financial statements reflect true market conditions, allowing stakeholders to make better decisions.

3.     Application:

o   Commonly used for financial instruments such as stocks, bonds, and derivatives.

o   Used in financial reporting to value assets and liabilities at fair value.

4.     Benefits:

o   Provides transparency by reflecting the true market value of assets and liabilities.

o   Helps in recognizing gains or losses promptly, giving a more accurate picture of financial performance.

5.     Challenges:

o   Can introduce volatility into financial statements, especially during market fluctuations.

o   Valuation can be difficult for illiquid assets where market prices are not readily available.

Overall, Mark to Market is essential for reflecting the true financial position of an entity by accounting for current market conditions.