Tangible Assets are the assets having the physical attributes such as Land and Building, Plant & Machinery, Equipment’s, Inventory, IT hardware etc. Apart from tangibles assets, there are some other assets which are also recognized as fixed operating assets but they do not have any physical attributes like tangibles. Such assets are Goodwill, Patents, Copyrights, Trademarks etc. are also known as Intangible Assets.
Tangible assets (excluding Land) having limited life of say 5 years, 10 Years, 15 years etc. and its value is declining to zero or some salvage value during its life of operations, in accounting terms, such decline in value is known as “Depreciation”. Similarly, Intangibles assets can have definite and indefinite useful life and the declining in the value of intangibles over the span of their life is known as “Amortization”.
Both Tangible and Intangible assets are the fundamental part of any business. Industries with high proportion of intangible assets include technology, healthcare, and entertainment and media etc. Valuation of intangible assets is difficult as compared to valuation of tangible assets due to the uncertainty of future benefits as compared to valuation of tangible assets. The company’s valuation is highly influenced by value of its underlying assets (either tangible or intangible). Their valuation requires professional judgement and expertise as each asset is unique in its condition and utility.
Today’s global business environment has increased the significance of transparent and robust valuations that meet regulatory, accounting and financial reporting requirements. Assessing and justifying values of assets have become more crucial and complex as valuations of tangibles is based on asset characteristics.
Purpose of Operating Fixed Assets
- Financial Reporting
- Asset Monitoring
- Tax Planning
- Impairment Testing
- Purchase Price Allocation (PPA)/Financial Accounting
- Corporate Restructuring
- Replacement Budgeting
Importance of Tangible Asset Valuation
- Helps to determine if the company (generally having high tangible assets) is overvalued or undervalued by comparing value of net tangible asset per share to current share price of the company.
- Tangible assets can form a measure of liquidity as the company with high net tangible asset value has low risk in terms of liquidity. Therefore, tangible assets serve as collateral to get short term and long-term credit.
- Helps companies to access the capital requirements for replacement or maintenance of existing tangible assets and investment for future growth.
Commonly used methods for Tangible Assets Valuation:
- Appraisal Method: Appraiser determines the fair market value of the assets by considering current condition of the asset including wear and tear, expected life and degree of obsolescence.
- Replacement/Reproduction Cost: Replacement cost states the cost which is incurred to create or acquire the same asset with same utility using the modern materials and standard. Whereas reproduction cost states the cost which is incurred to create exact replica of the asset with same utility, i.e. even with obsolete materials and standard.
- Liquidation/Salvage Value: Assessor determines the fair value of an asset when the company gets liquidated or if the asset is no more usable.
How we support you?
Our experienced and dedicated team provides fundamental and technical assistance pertaining to Operating Fixed Assets.
Valuation of tangible assets for determining fair value, tax planning, financial reporting, insurance matters, solvency matters, bankruptcy filing or any other legitimate purposes.
We provide physical verification of on-site assets for the purposes of transaction due diligence, audit services and regulatory compliance.
Capital Budgeting and Accounting
We closely analyze and review existing accounting and asset utility to provide unbiased opinions on effective accounting and capital budgeting strategies.
Estimation of Useful lives
We provide reasonable and fair time period estimation over which depreciation of the tangible asset occurs through in-depth study of factors affecting their useful life span for the purposes of company’s financial and tax disclosures.
Valuation of Operating Fixed Assets is important for the businesses to properly account for tangible and Intangible assets at the time of transfer of title in sale and purchase of assets, lease structuring, obtaining credit, settlement of dues in times of distress, valuation for tax or other purposes, insurance, liquidation etc.
At Veristrat, our holistic approach to tangible assets valuation enable us to deliver accurate and timely results. We believe that assessment of Operating Fixed Assets valuation requires a logical and measurable approach. Our dedicated team offers wide range of strategic solutions for tangible assets like valuation, physical audit, ascertaining useful life of assets, asset componentization etc.