The Different Methods Of Asset Valuation

By Author: Vikram Kumar
Total Articles: 9429
Comment this article

Assets are valued for many different purposes, whether it is for taxes, mergers and acquisitions, balance sheets, and many more. Essentially, asset valuation is simply determining exactly what an asset is worth. While this might sound like a simple task of determining how much an asset can be bought or sold for, it is actually more complex than that. There are a number of different methods for valuing assets, including such methods as fair value valuation, replacement cost basis valuation, and depreciation valuation, to name a few.

Perhaps the simplest method of valuation is the replacement cost method. This is simply the actual cost of obtaining a replacement for a particular asset. Of course, this type of valuation can be subject to fairly significant changes as the price of an asset on the market goes up or down.

Then there is the good-as-new valuation. This method of valuation is usually used when an asset has been in use for some time but is still functioning or serving its purpose adequately due to proper maintenance. This method then values the asset by taking into account its depreciation, but adding the ...
... cost of maintenance back to the value of the asset, thus giving a more accurate picture of what the asset is worth including the amount of money spent to keep it working.

Where an asset is made up of a number of different parts, but they are not composite or “joined” in nature, then the sum-of-parts method of valuation is used. This means that each of the different parts is individually valued and then added together to derive the composite value of the asset.

The depreciation method of valuation has two different types. The first is the book value depreciation method, which is essentially the value of the asset as it is written down on the company’s books. In the first year, the value of the asset shown on the books is equal to the amount it cost to purchase the asset. Which each subsequent year, however, value is deducted to account for the decreasing lifespan of the asset.

The second depreciation method is the market value depreciation valuation. This involves calculating the value of an asset by ascertaining its current value on the market, then reducing its value according to the number of years that it has been in use.

The fair value valuation is perhaps the most straightforward method of valuation. This method of valuation is usually applied to assets that can be exchanged for value on the market. This essentially means that the asset is worth whatever it can be sold for on the open market.

These methods of valuation are all valid methods by which assets can be valued, although there are certain methods that are specified by law for specific purposes. Valuing an asset for insurance purposes, for example, might require a particular type of valuation to be used. Whether you need to use fair value valuation, the depreciation method, or any of the other valuation methods, you should engage a reputable valuer to ensure that your assets are properly valued.

Resource Box:

Asset : When it comes to valuing assets, using the right method of valuation is important, and you would hardly want to use Fair Value Valuation when you should in fact be using good-as-new valuation. With RHAS, you can be sure that you will not run the risk of making such mistakes.