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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Sundaram Textiles Ltd. is planning to sell its entire spinning division to a strategic buyer. The board asks the company secretary what business valuation fundamentally aims to establish for this negotiation. Which statement best captures the meaning of business valuation?

Business valuation is the process of estimating the economic worth of a business, division or asset as at a particular date using systematic, accepted methods. It is not mere recording of historical cost, fixing face value or computing tax on the transaction.

  1. AEstimating the economic worth of a business or its assets as at a given date using systematic methodsCorrect
  2. BRecording the historical cost of all assets in the books of account
  3. CFixing the face value of shares at the time of allotment
  4. DDetermining the tax payable on the sale of the division

Explanation

Business valuation is the process of estimating the economic value of a business, a division or an asset as at a specific date by applying accepted methods. Book cost recording is accounting, face value is a fixed nominal amount, and tax computation is a separate exercise that follows the deal.

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