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Definition: Adjusted Net Asset Method
Adjusted Net Asset Method is one of the several accounting techniques aimed at providing a fair estimate of a firm’s value. This method is generally used in case of those firms which do not have an even track record in terms of profit in the past or those undergoing liquidation or the ones which do not have any prospects of earning profits in the near future.
Also known as Asset Accumulation Method, the Adjusted Net Asset Method adjusts the book values of a firm’s assets and liabilities to arrive at their fair market value at the time of evaluation depending on whether it is an ongoing concern or a case of liquidation.
Net Assets Value = Fair market value of adjusted assets – Fair market value of adjusted liabilities
However, in case of an ongoing concern, market value of operating assets is generally not considered based on the logic that the intention is not to sell the assets on a piece meal basis. On the other hand non-operating assets which can be disposed off without impacting the operations of the company are adjusted for their market value. The adjustment process covers all tangible and intangible assets including the ones not mentioned on the balance sheet. The adjustments further include contingent liabilities, and assets, convertible instruments, investments and surplus assets etc.
Example: In case of land and building which are not being used for company’s business, the appreciation or depreciation in the value of these assets are adjusted for the tax liability or the tax shield on such appreciation or depreciation and added/deducted from the Net Assets Value.
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