Question

Summarize the basic process for valuing assets

Answer 1

Asset valuation can be defined as a process of assigning a value to a particular asset.

Asset can broadly be categorized in two 2 categories i.e. Tangible Assets and Intangible Assets

Tangible assets refer to a company’s assets that are physical or that can be seen or touched. Examples include land, building, plant and machinery etc.

In order to compute for the value of a tangible asset we shall follow the below procedure:

First of all we shall look at company's balance sheet and identify tangible and intangible assets both.

Then we shall deduct the total value of the intangible assets from the total assets

Now we shall deduct the total value of the liabilities from the above computed value in order to get the value of net tangible assets

Intangible assets are those assets that does not have any physical form such as Goodwill, Patents, Copyright etc.

For example Company A is acquiring Company B for a total value of $ 10 million. However the value of Company's B Net Assets is $ 8 million.

The extra $ 2 million that Company A is paying to Company B is on account of Goodwill of Company B in the market.

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