Ind As 36 / IFRS IAS -36 – Impairment of Assets:
The objective is to verify that the assets of an entity are not recorded on the financial statements at a value exceeding their recoverable amount. This amount is determined as the higher value between the fair value less costs of disposal and the value in use. Except goodwill and specific intangible assets, which necessitate an annual impairment assessment, entities must perform impairment tests whenever there are signs indicating a potential impairment of an asset. Additionally, the assessment may extend to a 'cash-generating unit' if an asset does not generate cash flows that are substantially distinct from those of other assets.
Use:
Impairment testing is conducted as part of the financial reporting process, typically within the context of assessing the carrying value of assets on the balance sheet. This evaluation ensures that assets are not stated at a value exceeding their recoverable amount. Impairment testing is particularly crucial for assets such as property, plant, and equipment, intangible assets, and goodwill. It is a standard practice to perform impairment testing when indicators are suggesting a potential decline in the value of an asset. Additionally, impairment testing is carried out periodically, usually annually, or more frequently if there are significant changes in circumstances that might affect the recoverable amount of assets.
Impairment testing is typically conducted for various assets on a company's balance sheet to ensure their carrying value does not exceed their recoverable amount. Here's a list of common items where impairment testing is done:
- Property, Plant, and Equipment (PP&E)
- Intangible Assets
- Goodwill
- Investments in Equity Securities
- Financial Assets (e.g., loans and receivables)
- Deferred Tax Assets
- Inventory
- Investments in subsidiaries, joint ventures, and associates accounted for using the equity method
- Biological Assets
- Non-current Assets Held for Sale and Discontinued Operations
This list may vary depending on the specific nature of a company's operations and the accounting standards applicable in their jurisdiction. Additionally, certain industries may have unique assets or items that require impairment testing.
- Market Capitalization Method
- Discounted Cash Flow Method
- Liquidation Value Method
- RoI-Based Valuation Method
- Going Concern Method
- Asset-Based Valuation Method
- Capitalization of Earnings Valuation Method
- Book Value Valuation Method
- Comparable Transaction Multiples method (CTM)
- Comparable Companies Multiples method (CCM)
- Multiples of Earnings Valuation Method and many others.
To-date we have served a lot of startups with business valuation services. Besides, we also offer private company valuation services and the valuation of shares of private limited company. All these factors make us one of the best business valuation firms in India. Here are some reasons that make us the best for company valuation services in India and business valuation in India.
Why Choose us for Company Valuation India?
We give you several reasons to choose us your business valuation services partner in India.
- Team of experienced business valuation consultants
- A comprehensive scope of valuation that includes corporate finance valuation, insurance company valuation, private company valuation, brand valuations, etc.
- Years of experience of providing company valuation services.
- Use of the appropriate business valuation methods
- Diverse client base that includes startups, private companies, and many others.
- Presence across multiple cities in India.
- Accurate results, thus paving the way to better and informed decision-making and strategizing
If you are looking forward to the best valuation services in Mumbai, Bangalore, Pune, Delhi, Hyderabad, or any other city in India. Partner with Valuation India and get the best company valuation services under one roof. For more details, connect with us at +918484048948.
Business Valuation – Trends & Challenges
Emerging trends
The field of business valuation in India is witnessing some exciting trends such as
- Growing importance of intangible assets,
- Rise of start-up valuations,
- Adoption of technology driven valuation methods, and
- Impact of global market dynamics on valuations.
Challenges
Business valuation in India comes with its fair share of challenges. These include
- Lack of standardized methodologies,
- Subjectivity in valuation,
- Information gaps, and
- Changing regulatory environment.
Business Valuation Approach
Income Approch
- The Income Approach provides an indication of value by converting future cash flow to single current value.
- Under the Income Approach, the value of an asset is determined by reference to the value of income, cash flow or cost savings generated by the asset.
Cost Approch
- The Cost Approach provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction, unless undue time, inconvenience, risk or other factors are involved.
- The approach provides an indication of value by calculating the current replacement or reproduction cost of an asset and making deductions for physical deterioration and all other relevant forms of obsolescence.
Market Approch
- The Market Approach provides an indication of value by comparing the asset with identical or comparable (that is similar) assets for which price information is available.
FAQ's
Also termed company valuation, business valuation involves determining the economic worth or value of a particular business. The process comprises analyzing various areas of the business to determine its value. Company valuation helps determine the business’s fair value for reasons, including taxation, investor pitches, sale value, establishing partner ownership, etc. The process is complex and therefore requires companies to have professional valuation experts by their side to determine the right value.
A business valuation helps you compute vital numbers associated with a particular business. But its significance goes beyond numbers. It helps provide business owners insights concerning their business’s internal functioning, facts, market standing, etc. Some benefits of business valuation include the following.
- Understand a company’s resale value
- Gain a better knowledge of a business’s assets
- Negotiate better during mergers and acquisitions
- Compute a company’s true value
- Get access to more investors
- Plan ESOP
- Ensure proper succession planning
Professional business valuation experts leverage various methods to value a particular business. Some of them include the following.
- Book Value Method
- Discounted Cash Flow Method
- Enterprise Value Method
- Market Capitalization Method
- EBITDA Method
- ROI-Based Valuation Method
- Asset-Based Valuation Method
The steps involved in business valuation include,
- Choosing the appropriate business valuation experts
- Determining the valuation objectives
- Determining the basis of business valuation
- Understanding the premise of value
- Collecting the required data
- Assessing the business’s historical performance
- Determining the business’s future outlook
- Figuring out the correct valuation approach
- Applying applicable discounts
- Calculating and concluding a business’s value
Valuation experts consider various factors while valuing a business. It helps them achieve a comprehensive and more reliable figure. The top factors to consider include the below.
- EBITDA (value based on earnings before interest, taxes, depreciation, and amortization functions)
- The company’s size
- Growth potential and prospects
- Revenue trends
- Historical earnings
- The business’s location
- Reputation and goodwill
- The business’s competitive advantages
- The company’s staff and management team
Business valuation is a complex process involving the consideration of various factors. Hence it takes around 15-20 days for the entire process to be complete and for the professionals to come up with a comprehensive and valid business value.