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Module 3 - Liquidation Based Valuation
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Course
Financial Accounting (AE 111)
199 Documents
Students shared 199 documents in this course
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University of San Agustin
Academic year: 2022/2023
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Module 3 - Liquidation Based Valuation
Course: Financial Accounting (AE 111)
199 Documents
Students shared 199 documents in this course
University: University of San Agustin
Was this document helpful?
PrE 26 – VALUATION METHOD
MODULE 3
LIQUIDATION BASED VALUATION
Learning Objectives:
1. Identify the liquidation methods
2. Determine the principles of liquidation methods
3. Determine the value to be used in analysis
4. Know how to calculate the liquidation value
Topics:
1. Liquidation Value Methods
2. Principles of Liquidation Value
3. Calculation of Liquidation Value
Liquidation value
It is a value of a company if it were dissolved and its assets were sold individually. It
represents the net amount that can be gathered if the business is shut down and its
assets are sold in piecemeal. This is known as Net Asset Value.
Situations to Consider Liquidation Value
a. Business Failures – low or negative returns are signs of business failures
that is why it is the most common or usual reason why a certain business
closes or liquidates.
Types of Business Failures
i. Insolvency, when a company cannot pay liabilities as they
become due. ii. Bankruptcy, when liabilities become greater
than an asset balance.
Factors causing Business Failures
iii. Internal Factors – can come from mismanagement, poor
financial evaluation and decisions, failure to execute strategic
plans, inadequate cash flow planning or failure to manage
working capital.
iv. External Factors – are severe economic downturn, occurrence
of natural calamities or pandemic, changing customer
preferences, and adverse governmental regulations.
b. Corporate/Project End of Life – normally, corporations have stated their finite
life in their Articles of Incorporation. If there will be no extension on the
Source: C.A.Diquit,CPA,MBA and M.V. Lascano, H. C. Baron, A. T. L. Cachero., Valuation Concepts and
Methods, 2021 Edition, Philippines, 2021
