Net Tangible Asset Value: In the balance sheet of most companies or businesses, the business’s net assets are presented. However, the value of the company’s net assets stated there is not the business value representative.
The cost basis of accounting is what most companies use to prepare their balance sheet. That is, where the information regarding the assets and liabilities of a company are recorded at their historical acquisition and purchase as against the market commanding value of the assets in a sale as when stated. An asset approach is used to find the value of net tangible assets.
They include:
The book value of a business personal property such as furniture, vehicles, and fixtures or real property such as building, land, and land improvements does not always reflect fair market value. As a result, an expert appraisal from a third party is engaged to help find out the tangible assets’ market value.
- Related party or receivables payables
It’s necessary to consider if a receivable is payable or wholly collectible is meant to be paid in full. There are cases common to related parties like an intercompany receivable or a shareholder loan. Discuss every critical account with the company’s management to know if an adjustment is meant to account for future uncollected payable or receivables that are not made.
- Unrecorded Assets and Liabilities
It is paramount to check what not having liabilities or assets recorded would cause. An example of such an unrecorded asset or liability is potential legal judgments and settlements.
- Goodwill and Intangible Assets
Under the adjusted net asset method, intangible assets such as goodwill are usually written down to zero value. This is so because the value of such assets is best valued either by the market valuation approach or the income valuation. If these assets are stated on the company’s balance sheet but do not generate returns, it may question the assets. Thus, a warranty of further consideration is inevitable.
