Asset valuation methods and principles

Asset Valuation

The company is being set up as that of a retail company, and this will require the demands of a large amount of stock. Most of the stock needs to be bought and then sold at the earliest opportunity which is available. It could also be stated that it may also be possible to get suppliers who will supply at regular fixed intervals of duration of a week or so. This will help as regards to keeping the stock within the limits of the store or at a nearby stock point. Under such cases or circumstances, it should be viewed that the stocks which are been seen as coming in first are being sold first. The importance of last stocks in, first stocks out comes only when stocks are being held for a considerably longer period of time. In this case, it could be said that even the average cost may be taken up and that would mean that the goods sold may be considered as having come out of the stocks that would have been purchased earlier. But it might not have been sold and the other goods which would have come in later would have been sold. The average price of both would then be taken up as in terms of cost of goods which are sold.

In the case of the sales prices, the position is very clear and what is also well-known is that the position of money has been collected. And what the retail company stays and moves on is regarding the difference. If the principle of first in and first out is being taken, then when the prices would have an increase, then the profits will be seen immediately as the selling price will also make an increase, but the buying price in this case would be at lower levels. In the case of last in first out, this profit will go on to accumulate in relation to the level of stocks. But this will not be of much help because the level of investment increases in other areas is likely to be much more. The consideration of average prices will therefore only add to the several difficulties which are associated with running the outfit and will add to neither the amount of profits nor the operation simplicity.

However, as a new organization, our main and immediate interest is in buying. For a retail location, the most important asset to buy is a store at a proper location. The existing shop may have a certain amount of goodwill, but whether to buy the goodwill or not depends on the ill will that has also been earned as the shop would not have been sold otherwise. Thus the first step will be to look for a shop at an important location, and the owner must be willing to sell. The operation of a retail outfit will last for a long time, and thus it is important to own both the land and the building. The existing structure may or may not be suitable and if it is not suitable, then a new structure may have to be built. (Buyers Will Buy at Their Price ... Not Yours)

When the price of the place is considered, then the cost of construction will also have to be taken into account. Some operations in the retail industry may be available at a suitable location, or at a location where it would be difficult to set up a shop otherwise. This will help in moving rapidly into that market. For this, naturally an extra price will have to be paid. At the same time, let us remember that there is no formula for determining a price. It has to come through negotiations, and will have to come through the agreement with the buyer. (Buyers Will Buy at Their Price ... Not Yours) The price for purchase will not depend on stocks or many other intangibles that may exist in the outlet as a lot of it will be useless, but the payment will have to be determined directly.