Asset Valuation and Disposal

What is asset valuation?

Asset valuation is a process to determine the fair market or present value of assets. This process uses book values, among other things. It also uses absolute valuation models like discounted cash flow analysis. Asset valuation also considers option pricing models or comparables. Such assets include investments in marketable securities such as stocks, bonds, and options. Tangible assets, like buildings and equipment, are also included. Intangible assets such as brands, patents, and trademarks are also covered.

Asset valuation plays a key role in finance. The value of a company’s fixed assets or capital assets is straightforward to value. Book values and replacement costs dictate that value. The worth of a company’s brand and intellectual property is difficult to determine. There is no number on the financial statements to tell investors how much that is exactly. Companies can overvalue goodwill in an acquisition. That is because intangible assets are subjective and difficult to measure.

Asset Valuation and Disposal

What is asset disposal?

Asset disposal is removing a long-term asset from the company’s accounting records. Proper accounting of asset disposal is critical to maintaining updated and clean files. There are several reasons for asset disposal.

  • Disposal of an asset is unavoidable because of asset depreciation.
  • An asset is no longer useful or needed, so it gets sold.
  • An unforeseen circumstance, such as theft, leads to asset disposal.

There are three stages involved in the disposal of an asset.

  1. Identifying the asset for disposal by setting the Asset Status to Ready for Disposal.

You can manually set this using Asset Records, or you can change the status for a range of assets using Asset Disposal Selection.

  1. Using Ledger Entry to post any sales proceeds for the asset.

If the asset gets sold, this stage is essential. Keep in mind not to remove the static asset data if you will post sales proceeds after disposal. The asset sale proceeds posting does not need to contain an Asset Marker.

  1. Using Asset Disposal to dispose of the assets.

You can do this by generating transactions that reduce the asset values to zero. Remember to remove the selected asset details. You can have the list of the deals made printed if you switch the Force Journal Listing on in Ledger Setup. If you are using over-expenditure checking, transactions get posted during Asset Disposal. That is, even if you exceed budgets.

You can still access the Asset Details in Ledger Inquiry after you remove them. Once Asset Disposal processes an asset, the Disposal flag will appear on Asset Records.

Most companies hire an asset valuation and disposal company to help them. Hiring one is a smart and easy way to value and sell assets. Identifying the value in business assets and monetizing those are difficult. It is better to leave it to the experts.

Recommended For You

About the Author: Jacob Wyatt