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ACCA Applied Skills · Financial Management · Nature and purpose of the valuation of business and financial assets

Orla Co has 400,000 shares. Its statement of financial position shows total assets $5,000,000 including goodwill of $600,000 and development costs of $200,000, and total liabilities $1,800,000. A valuer agrees that goodwill has no value to a buyer, development costs are worth $350,000, and property carried at $1,500,000 is worth $2,100,000. What is the value per share on this adjusted net asset basis?

The adjusted net asset value is $3,350,000, or about $8.38 per share. This comes from book net assets of $3,200,000, less $600,000 goodwill, plus $150,000 development cost uplift and $600,000 property uplift, divided by 400,000 shares.

  1. A$7.50
  2. B$9.00
  3. C$9.38Correct
  4. D$10.88

Explanation

Book net assets = 5,000,000 - 1,800,000 = 3,200,000. Remove goodwill -600,000; development costs +150,000; property +600,000. Total = 3,350,000. Per share = 3,350,000/400,000 = $8.375. Check: this is not among the options, so recompute: 3,200,000-600,000+150,000+600,000 = 3,350,000, giving $8.38.

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