Newsletter Autumn 2006

 
 

Getting ready to sell/revalue those fixed assets

 

A fixed asset is held by an enterprise for the purpose of producing goods or rendering services. These may include machines, buildings, patents or licences or other equipment.

The total value of fixed assets shown in the balance sheet of your annual financial accounts will include the historical written down value of the fixed assets of your business. This figure will include the various additions of plant and equipments, vehicles etc. that you have made over the years. Each year the asset values will have been written down by an amount of depreciation to reflect the usage cost of the asset during the year.

However, although all assets are depreciated, sometimes assets are written down too harshly and other times assets are not depreciated sufficiently.  This means that the historical year end written down value of your fixed assets will not necessarily reflect a true open market value.

In the event of a sale, a  purchaser will need to have a detailed breakdown of these fixed assets as often they form a significant part of the value of the balance sheet of the company. It is therefore essential that your fixed assets are fairly valued and it is possible to make adjustments to the financial accounts before sale negotiations begin and without any taxation consequences.

The purpose of a revaluation of fixed assets is to amend the company’s financial accounts to show fixed assets at a fair market value.  Preparing for a company sale therefore you need to decide if the balance sheet value of fixed accounts represents a fair market value.  You do not want them to be included at too low a figure as this will reduce the balance sheet of the company unfairly.  In fact some assets, particular land and buildings, may have considerably appreciated since their purchase.

The common methods used are :

  1. Current market price – utilising the services of a chartered surveyor to place a value on land and buildings.
  2. Appraisal of market value by an appropriate “expert”. Machinery, for example may have been depreciated to a low net book value, but in reality has been lightly used.
  3. The Companies Acts requires disclosure of the basis of revaluation. The revaluation is credited to a separate ‘revaluation reserve‘ and is not available for distribution as a dividend, however, it would increase the balance sheet value of the fixed assets to a more realistic level.

ACF will advise you if an asset revaluation would be appropriate as a part of our service in getting your company ready for a sale. As always, our advice is, bring us in early and let us help you to obtain the best possible price for your company.

Thinking of Selling your Company? Contact ACF for a confidential free valuation and consultation.