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Asset valuation simply pertains to the value assigned to a specific property, including stocks, options, bonds, buildings, machinery, or land, that is conducted usually when a company or asset is to be sold, insured, or taken over. The assets may be categorized into tangible and intangible assets. Valuations can be done on either an asset or a liability, such as bonds issued by a company.
Methods of Asset Valuation
Valuation of fixed assets can be done using various methods, which include the following:
The cost method is the easiest way of asset valuation. It is done by basing the value on the price for which the asset was bought.
The market value method bases the value of the asset on its market price or its projected price when sold in the open market. In the absence of similar assets in the open market, the replacement value method or the net realizable value method is used.
The base stock method requires a company to keep a certain level of stocks whose value is assessed based on the value of base stock.
The standard cost method uses expected costs instead of actual costs, often based on the company’s past experience. The costs are obtained by recording the differences between expected and actual costs.