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by Jorvis M.

Asset-based approach - explanation

Accumulation of the value of each asset

-> Individual assets can be valued through any methodology

-> Use for business or groups of assets

Cost-based approach - explanation

Cost to replace the service capacity of the asset

-> Use for individual asset

Problem of the asset approach

Usually does not take into account the value of unidentified assets, such as goodwill

Cost approach - what methods exist

Asset accumulation method
Reproduction cost method
- Current costs to recreate identical asset
Replacement cost method
- Current costs to recreate asset with equivalent functionality and utility

For what is the asset approach usually used?

Controlling interest in a holding company that mostly has tangible or financial assets

-> Not if noncontrolling interest or business that has goodwill or significant intangibles (only floor value)

What is the main principle of the cost approach?

Substitution principle

What costs would be considered in the cost approach?

What is the cost approach used for?

Cost approach - what about income taxes?

Usually pre-tax: Do not effect costs and do not include an amortization benefit

Replacement cost method - process

Last changed
2 years ago

4 - Cost Approach