In Wikipedia (2020), a Fixed Asset Register (FAR) is described as an accounting method used for major resources of a business. Fixed Assets are assets such as land, machines; office equipments, buildings, patents, trademarks, copyrights, etc. held for the purpose of production of goods or rendering of services and are not held for the purpose of sale in the ordinary course of business.
Fixed assets constitute a major chunk of the total assets in the case of all manufacturing entities. Even in the case of service entities such as hotels, banks, financial institutions, insurers, mobile / telephone service providers etc. it has become imperative to invest heavily in furnishing, equipment, and technology to attract, and retain customers.
Valuation of financial assets
In finance, valuation is the process of estimating the market value of a financial asset or liability. Valuations can be done on assets (for example, investments in marketable securities such as stocks, options, business enterprises, or intangible assets such as patents and trademarks) or on liabilities (e.g., bonds issued by a company). Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability, and in litigation.Valuation of financial assets is done using one or more of these types of models:
- Relative value models determine the value based on the market prices of similar assets.
- Absolute value models determine the value by estimating the expected future earnings from owning the asset discounted to their present value.
- Option pricing models are used for certain types of financial assets (e.g., warrants, put options, call options, employee stock options, investments with embedded options such as a callable bond) and are a complex present value model. The most common option pricing models are the Black-Scholes-Merton models and lattice models.
Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value. The meanings of these terms differ.
- The most common term is fair market value defined as the cash price an item would sell for between a willing buyer and willing seller assuming they both have knowledge of the relevant facts and they have no compulsion to buy or sell. Fair value is used in different contexts and has multiple meanings. Some people use the term to mean the same thing as fair market value.
- Fair value is also a term used in accounting and law. It is used in generally accepted accounting principles (GAAP) for financial reporting and in law in shareholder rights legal statutes. In these cases, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Intrinsic value is an asset’s true value regardless of the market price. When an analyst determines a stock’s intrinsic value is greater than its market price, the analyst issues a ‘buy’ recommendation and vice versa. The determination of intrinsic value may be subject to personal opinion and vary among individual analysts.
