Asset valuation is the process of measuring what an asset, or a group of assets, is worth. There is no single right answer: the value depends on why you are asking. The accounts need a carrying amount under accounting standards, a buyer wants fair value, and an insurer wants the cost of replacing the asset. Every method relies on an accurate asset register, because you cannot value what you cannot find.
Valuation bases and when to use them
| Basis | Meaning | Typical use |
|---|---|---|
| Net book value | Cost less accumulated depreciation and impairment | Financial statements under the cost model |
| Fair value | Price received to sell the asset in an orderly transaction between market participants (IFRS 13, ASC 820) | Revaluations, sales, acquisitions |
| Replacement cost | Cost to replace with an equivalent asset today | Insurance cover |
| Value in use | Present value of the future cash flows the asset is expected to generate | Impairment testing (IAS 36) |
| Liquidation value | Price in a quick or forced sale | Restructuring, secured lending |
Asset valuation methods: market, income and cost approaches
When fair value has to be estimated, valuers use one or more of three approaches:
- Market approach: prices of identical or similar assets in recent sales, adjusted for age, condition and specification. Common for vehicles and standard equipment.
- Income approach: the present value of future cash flows the asset is expected to produce. Used for income-producing property and for value in use.
- Cost approach: what it would cost to replace the asset's service capacity today, less an allowance for physical wear and obsolescence. Often called depreciated replacement cost, and common for specialised assets with no active market.
Cost model vs revaluation model (IAS 16)
IFRS lets an entity choose, for each class of property, plant and equipment:
| Item | Cost model | Revaluation model |
|---|---|---|
| Carrying amount | Cost − accumulated depreciation − impairment | Fair value at revaluation date − later depreciation and impairment |
| Increases in value | Not recognized | Credited to a revaluation surplus in other comprehensive income |
| Decreases in value | Through impairment | Against any surplus for that asset first, then profit or loss |
US GAAP does not permit upward revaluation of property, plant and equipment. Assets stay at historical cost less depreciation and impairment (ASC 360).
Impairment (IAS 36)
An asset is impaired when its carrying amount is higher than its recoverable amount, the higher of fair value less costs of disposal and value in use. Signs include physical damage, obsolescence, falling demand or plans to stop using the asset early.
US GAAP uses a different test for assets held and used: first compare the carrying amount with undiscounted future cash flows, and only if it is not recoverable, write the asset down to fair value.
Examples by sector
- Hospital: replacement cost for medical equipment drives insurance cover, while the accounts carry it at NBV.
- Government: specialised buildings with no market are often valued at depreciated replacement cost.
Common mistakes
- Treating NBV as market value. Depreciation allocates cost; it does not track price.
- Revaluing selected assets. Under IAS 16 the whole class is revalued.
- Insuring at book value, which can leave the business under-insured.
Spreadsheet vs software
A valuation starts from the asset list: what you own, where it is, its condition and its cost. Spreadsheets can hold this, and the free asset register template is a good starting point. They break down when the list is out of date: the valuer prices assets already disposed of and misses unrecorded ones. A register kept current by scanning and audits avoids that.
Asset valuation in Asetavo
Asetavo calculates book value from cost: on the Business plan, depreciation keeps NBV on each asset, and the register and depreciation reports export cost and NBV to Excel or CSV for your valuer or auditor. Fair, replacement and insurance values come from your own appraisals; custom fields (Growth plan) can store them on the asset record. Record revaluations and impairments in your accounts, following your accountant's advice.
