Table 1. Asset-based approach Approach... | Emerald Publishing

Table 1.

Asset-based approach

Approach	Key assumption	Advantages	Disadvantages
The book value approach	The value of an asset or group business assets is the historical (sunk) acquisition costs less the financial reporting determined asset depreciation guided by the asset’s useful life	• Relatively simple to calculate	• Uses historic sunk costs • Relies on arbitrary depreciation • Inventory and receivables require adjustments • Does not consider the business’s future cash-generating potential
Net realisable values of the assets less liabilities	The value is the amount obtained should the asset or group of business assets be sold on the open market subsequent to the liabilities being settled	• Relatively simple to calculate	• Realisable value becomes low due to port assets being specialised • Limited market • Does not consider the business’s future cash-generating potential
Replacement values	The value is the cost to set up a business if it were to be started as a greenfield project	• Relatively simple to calculate	• Does not consider the business’s future cash-generating potential

Approach	Key assumption	Advantages	Disadvantages
The book value approach	The value of an asset or group business assets is the historical (sunk) acquisition costs less the financial reporting determined asset depreciation guided by the asset’s useful life	• Relatively simple to calculate	• Uses historic sunk costs• Relies on arbitrary depreciation• Inventory and receivables require adjustments• Does not consider the business’s future cash-generating potential
Net realisable values of the assets less liabilities	The value is the amount obtained should the asset or group of business assets be sold on the open market subsequent to the liabilities being settled	• Relatively simple to calculate	• Realisable value becomes low due to port assets being specialised• Limited market• Does not consider the business’s future cash-generating potential
Replacement values	The value is the cost to set up a business if it were to be started as a greenfield project	• Relatively simple to calculate	• Does not consider the business’s future cash-generating potential