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CS Professional · Corporate Restructuring, Valuation and Insolvency · Valuation of Business and Assets for Corporate Restructuring

Kaveri Software Pvt Ltd developed an internal customer database over many years. Before a merger, the valuer values it by estimating what it would cost to rebuild an equivalent database today, including developer effort, and then deducting an allowance for obsolescence. Which approach and feature describe this?

This is the cost approach. The valuer estimates the current cost of replacing or reproducing an equivalent database and then deducts obsolescence. It does not depend on future earnings or on market transaction prices, which distinguishes it from income and market approaches.

  1. AMarket approach, adjusting for control premium
  2. BIncome approach, using multi-period excess earnings
  3. CCost approach, using reproduction or replacement cost less obsolescenceCorrect
  4. DIncome approach, using the capitalisation of maintainable profit

Explanation

Estimating the current cost to rebuild an equivalent asset and deducting obsolescence is the cost approach. It does not rely on future income or market transactions, so the income and market options are wrong.

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