Ch. 18 - Valuations - Asset-Based Approaches Flashcards
1
Q
Different asset-based approaches
A
- Liquidation
- Adjusted net asset
- Replacement cost
2
Q
Liquidation approach - when to use
A
- when the entity is not a going-concern
3
Q
Two types of liquidation scenarios
A
- orderly liquidation
2. forced liquidation
4
Q
Steps in performing a liquidation valuation
A
- BS assets adjusted to NRV
- liabilities deducted from assets
- corp tax liability from selling assets
- personal tax liability from distribution
5
Q
Adjusted net asset approach - when to use
A
either:
- the company has no active operations, or
- the company has active operations but no excess earnings
6
Q
Steps in performing adjusted net asset valuation
A
- BS items are adjusted to FMV
- foregone ta shield is deducted
- Latent taxes and selling costs are deducted
7
Q
Latent taxes calculation
A
income tax rate x taxable capital gain
8
Q
Replacement Cost approach - when to use
A
often used in insurance claims
9
Q
Replacement Cost - how to calculate
A
- assets adjusted to replacement cost
- remove liabilities
- remove tax consequences from selling assets