10-1 Describe how the value of any asset is determined.

Expert Solution

Assets Valuation refers to the process of determining the fair value of the asset in the market. This can be done in the following three ways:

i) Absolute value method is the method which helps in determining the value of assets using the expected future cashflows that will be generated from the asset throughout its life. In this method the present value of the asset is determined by discounting the future expected cash flows that will be generated from the asset.

ii) Relative value method is the method of determining the value of the asset based on the value of the assets that belong to the similar category or that are similar to the existing asset. Like if we want to value a land in a particular area, we will look at the value of the other properties situated in the same area.

iii) Net Assets value method is the method which is used to determine the price of the asset using the book value of the asset which is the value at which the asset has been purchased and deducting the amount of depreciation accumulated overtime.

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