Navigation bar
  Home Print document Start Previous page
 42 of 71 
Next page End 37 38 39 40 41 42 43 44 45 46 47  

© Copyright 2002-2003. All rights reserved.
Page 42
How To Investigate Any Business Opportunity
priced as in the case of the merchandise inventory. 
Property assets and accumulated depreciation. The property-asset account normally reflects the
cost of the assets reduced by a provision for depreciation. In many small business buy-sell transactions,
no real property is exchanged, because the plant site is leased. The problem of establishing a value on
real estate is not as acute, anyway, since the market value for real property does not fluctuate as widely
as the market value for personal property, It is customary to have an independent appraiser establish a
value for real property. 
Appraisers' findings on real property are usually more acceptable to both parties than personal-property
appraisals - the real property may have multiple uses, whereas personal property consists of single-
purpose assets. The book value of real property will be close to the appraisal value unless the property
has been held for a long period of time or unusual circumstances have caused sudden and drastic
changes of real-property values.
Personal-property assets. The buyer may feel that he knows going values of the personal property
and decide not to retain an independent appraiser. In addition, many individuals believe that cost or
book value is a good place to begin negotiations for personal property. However, because of the many
methods of computing depreciation and also because of conflicting ideas about capitalizing costs, the
cost or book value may not reflect a value that is agreeable to both parties.
It is difficult to assign a value to personal property equipment because these assets have little value if
the company is liquidated. Therefore, a going-concern value should be determined. The price to be paid
for this equipment should be somewhere within the range of the cost of new equipment or the cost of
comparable used equipment. For this reason, an independent appraiser can be useful, particularly if he
is acquainted with the type of equipment being sought or sold.
The seller should realize that he may own assets that do not appear on the fixed-asset schedule. Many
companies have a policy of not capitalizing any assets below some arbitrary amount ($200 or $300). A
complete physical inventory should be taken.
If the assets are numerous and geographically dispersed, the seller may be asked to prepare a certified
list of the assets giving description and location. The buyer can then test the list by verifying only se-
lected assets at the time of the sale, but with plans to verify all of them within a certain period of time.
The value of personal-property assets is usually decided after considerable bargaining. It is better to as-
sign values to individual assets rather than to make a lump-sum purchase of assets. In a lump-sum pur-
chase, there is more chance of overlooking some asset values.
The buyer should try to determine the condition of the assets as well as repair and replacement require-
ments. If he doesn't establish the condition of the assets individually, repair and possible replacement
costs may create an unexpectedly heavy drain on his working capital.
Previous page Top Next page