Asset Valuation

Asset Valuation

Non-current or fixed assets are long-term or permanent business assets. Non-current assets include land, buildings, furniture & fixtures, computer equipment, plant and machinery, tools and motor vehicles.

Usually Non-current assets are valued by deducting the accumulated depreciation from the original purchase cost.

For example, if a business bought a computer for $2100 two years ago, this is a non-current asset and it’s subject to depreciation. If the accumulated depreciation for the computer is $1,000 over the 2 years, then the value of the asset now is $1,100.

Sometimes, the depreciated value of a tangible asset is quite different to its market value.  It’s important to verify the market values, particularly for high value assets.

Methods of Valuation of Assets

Valuation of various assets can be made by using different methods. Valuation of fixed assets can be made in different ways. Some of the major methods are as follows:

1. Cost Method

In this method, valuation of assets is made on the basis of purchase price of the assets. It is very simple method of valuation of assets. Sometimes, existence of one asset depends on the existence of another. Then it is difficult to use this method.

2. Market Value Method

Valuation of assets can be made on the basis of market price of such assets. But if same nature of assets is not available in the market, it is very difficult to determine the value of such assets. So, there are two methods related to it. They are:

i. Replacement Value Method

If same asset is to be purchased then on the basis of same value, valuation of assets can be done.

ii. Net Realizable Value

It refers to the price in which such asset can be sold in the market. But expenditure incurred at the sale of such asset should be deducted.

3. Base Stock Method

Under this method of valuation, company should maintain certain level of stock and valuation of stock is made on the basis of valuation of base stock.

4. Standard Cost Method

Some of the business organizations fix the standard cost on the basis of their past experience. On the basis of standard cost, they make valuation of assets and present in the balance sheet.