VALMET530.uno.r-Module-2-Asset-Valuation-Method

MODULE 2. ASSET VALUATION METHOD Learning Objectives: After successful completion of this module, you should be able to: Enumerate the importance of asset valuation Calculate asset values using the methodologies discussed Importance of Asset Valuation Asset valuation plays a key role in finance and consists of subjective and objective measurements. The value of a company's capital assets is straightforward to value, based on the book values and replacement costs. The value can easily be ascertained on tangible assets. However, there is no figure on the financial statements that tell investors exactly how much intangible assets like brand or intellectual property are worth. Companies can overvalue goodwill in an acquisition as the valuation of intangible assets is subjective and can be difficult to measure. There are many reasons for valuing assets, some of which are the following: a). Right Price Asset valuation helps identify the right price for an asset when it is offered to be bought or sold because the buyer won't need to pay more than the asset's value nor will the seller be paid less than the asset's value. b). Taxes Taxes is inherent to a property and by doing asset valuation, taxes are considered and calculated accurately. c). Company Merger In merging two companies of acquiring company, asset valuation is important because it helps both parties size up the business. d). Loan Application Asset valuation is needed for the lender to determine the loan amount that can be borrowed by a company by offering its assets as collateral. e). Audit Public companies are regulated. which means that they need to present audited financial reports to the investors. Part of the audit process involves verifying the value of assets Methods of Asset Valuation Cost Method This is the easiest way of asset valuation where the value of the asset is based on the carrying cost or purchase price and replacement costs. Tangible assets refer to assets that are physical or that can be seen, which have been purchased to produce products or services.