Fair value calculation and assessment

Fair value calculation and assessment

What it is

Fair Market Value (FMV) is the price that a willing buyer of a given asset would pay to a willing seller. Both ends of the purchase process are usually:

  1. Unrelated
  2. Knowledgeable
  3. Unpressured to buy or sell

Fair value is calculated and assessed based on the process of evaluating an asset or business’ FMV. In terms of goods or services, it is a rational and unbiased estimate of their potential market price.

How it affects your business

It is essential for you as a business owner to know the fair market value of your assets, liabilities, and equities, as FMV is the basis for tax and insurance assessment.

It is important to note that the numbers in financial statements are not necessarily the same as the fair value of assets, liabilities, or equities. This might result due to various reasons, including:

  • Most of the recognition criteria of assets, liabilities, and equities are based on historical cost, which by the passage of time and use might change the FMV
  • The change in the value of money over time is not being taken into consideration for most of the balance sheet items, and specifically for long-term and short-term assets and liabilities which might not be realized within the classification criteria
  • There might be some intangible assets that are not being recognized

Why XB4

At XB4, our team of professionals is qualified and experienced to assess and calculate the fair market values of any company or business’ asset using the best practices and methodologies, and taking into consideration the guides, regulations, and factors that businesses abide by when measuring FMV.

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