Fixed Asset

Asset Valuation

Asset valuation simply pertains to the process to determine the value of a specific property, that may be buildings, machinery, inventory, options, bonds, or other financial securities. Asset Valuation is conducted usually when a company or an asset is to be sold, insured, or taken over. The assets may be categorized into tangible and intangible assets.

Asset Valuation – Valuing Tangible Assets
Tangible assets refer to a company’s assets that have a physical form, which have been purchased by an organization to produce its products or goods or to provide the services that it offers. Tangible assets can be categorized as either fixed asset, such as structures, land, and machinery, or as a current asset, such as cash, inventory etc.

Other examples of assets are company vehicles, IT equipment, investments, payments, and on-hand stocks.
To compute the net tangible assets of a company:

• The company needs to look at its balance sheet and identify tangible and intangible assets.

• From the total assets, deduct the total value of the intangible assets.

• From what is left, deduct the total value of the liabilities. What is left are the net tangible assets or net asset value.

Importance of Asset Valuation

companies and organizations. There are many reasons for valuing assets, including the following:

Company Merger-Demerger, Acquisition, Hive-Off etc

Asset valuation helps identify the right price for an asset, especially when it is offered to be bought or sold. It is beneficial to both the buyer and the seller because the former won’t mistakenly overpay for the asset, nor will the latter erroneously accept a discounted price to sell the asset.

  • Audit Purpose
  • Funding Proposals
  • Other Strategic Decisions
Fixed Asset Valuation

Fixed assets are tangible assets, and that means their quality can diminish over time.
It is important for companies to account for the depreciation of their assets. Fixed asset valuation is a method of accurately reflecting those assets on the balance sheet. There are multiple different types of fixed asset valuation approaches

  • Cost Approach
  • Market Based Approach
  • Income Based Approach

Depreciation and

Fixed Assets face continuous depreciation and get obsolete with the time and shift in technologies. The exact financial impact of Depreciation & Obsolescence on financial standing of company needs to be continuously captured by management.

The Role of the Auditor
The auditor is responsible for ensuring that all assets are indicated appropriately in the books of accounts & financial statements, to give a true & fair indication of company’s status in its financial statements.

There are several challenges facing auditors during this process that companies should consider:
The nature of the asset
Different types of assets call for different valuation methods, so it is important to categorize them appropriately. But some assets are easier to classify than others.
How the assets are used
Sometimes an asset’s function within the company changes, and that can be difficult to track when it comes time to appraise it.
The life of the asset

Many methods call for a certain degree of speculation into the future, which always brings an element of the unknown into the process.

Future contingencies
Sometimes the value of an asset changes after the audit is complete — a building might burn to the ground, for example. When this happens, it can create a lot of doubling back to put the balance sheet back in order.
Inadequate facts
Business valuation can be enormously complicated, and there is some inherent risk that something might get overlooked, or user error might come into play. This can lead to an inaccurate valuation.