Tangible assets are the fundamental part of most businesses, they are in the physical and material form such as land and building, plant and equipment, inventory, IT hardware etc. Valuation and assessment of tangible assets requires professional judgement and expertise as each asset is unique in its condition and utility. Valuation and assessment of tangibles is based on asset characteristics and purpose of assessment like tax planning, financial reporting, impending sale, replacement and maintenance budgeting etc.
Importance of tangible assets assessment
- Capital Budgeting is the integral part of business sustainability and growth. Companies continuously review budget plans, as it is necessary to ascertain the capital requirements for replacement or maintenance of existing tangible assets and investment for future growth.
- Depreciation on tangible assets is a non-cash expenditure that provides with tax deductions with no outflow of cash from the business. Ascertaining the asset’s wear and tear, appropriate depreciation method, asset life and salvage value is of significant importance for the company’s financial and tax disclosures.
- Liquidity and collateral, as tangible assets can be separated from the business and converted into cash, they form a measure of liquidity to the company and also a source of collateral to take loans. As long as the value of the tangible assets is more than the money risked, it becomes easier for company to get short term and long term credit.
- Store of value, tangible assets require a significant amount of investment out flow and proper utilization of assets acts as a store of value and future returns.
Considering importance of intangible assets warrants that it is important for the businesses to properly account for tangible 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.
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 provide fundamental and technical assistance pertaining to:
- 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.
- We closely analyze and review existing accounting and asset utility to provide unbiased opinions on effective accounting and capital budgeting strategies.
At Veristrat, we have dedicated team providing strategic solutions for tangible assets like valuation, physical audit, ascertaining useful life of assets, asset componentization etc.