Skip to content

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

Meenakshi Foods Ltd is in financial distress and the promoters want to know what shareholders would receive if the business were wound up. Which asset-based basis is the appropriate one for this purpose?

Liquidation value is appropriate. It takes the net realisable value of assets, deducts liquidation costs and settles all liabilities, and what remains is available to shareholders. Book value, replacement cost and earnings capitalisation all rest on historical figures or a going-concern assumption.

  1. ALiquidation value, using net realisable values of assets less liquidation costs and all liabilitiesCorrect
  2. BReplacement cost of assets assuming the business continues
  3. CBook value of net worth as per the last balance sheet
  4. DGoing-concern value using capitalised future maintainable earnings

Explanation

When the entity is not a going concern, assets are taken at the amounts realisable in an orderly or forced sale, after deducting winding-up costs, and liabilities are settled first. Book value and replacement cost assume continuity or historical costs, and earnings capitalisation is an income approach.

Did you get it right without looking?

One question tells you little. A timed set on Valuation of Business and Assets for Corporate Restructuring shows your real accuracy, how long you take and where you lose marks.

Practise Valuation of Business and Assets for Corporate RestructuringFree diagnostic mock

More Valuation of Business and Assets for Corporate Restructuring questions