Valuing Your Business

What approach to use: A valuation approach is the method used to determine the fair market value of a business.

The most common approaches are:

Market approach

The market approach is based on finding prices for comparable businesses or transactions in the public or private markets and using them to infer the value of the business or transaction. Two methods to determine the market value of a business are:

  • Current market value: applicable if stock is actively traded in the stock market.
  • Comparable: identify a publicly traded business with comparable characteristics and calculate multiples based on the performance

Income approach

The income approach is based on determining future earnings and calculating the present value. Two common approaches are:

  • Discounted cashflow method: Involves projecting future cashflows, income and expenditure. Calculating a terminal value and discounting them to present value.
  • Capitalised cashflow method: A shortened version of discounted cashflow where both the growth and discount rate as assumed to remain constant into perpetuity

Asset approach

This is based on the value of business being equal to the sum of all the parts of the business. Adjusting book value of each asset or liability to fair market value.

So, which do you use: it depends on the specific circumstances of the business being valued.

Do you have any questions?

We are happy to help. Please post your comment below or call Lisa Byrne, Audit Manager at Cooney Carey, on 01 677 9000. Alternatively, send her an email: lbyrne@cooneycarey.ie 

If this article helped you, please share it with others.

Posted on March 14, 2018 by Lisa Byrne

Revenue Recognition Under FRS102 – Part 4 Other Income and Disclosures

Other Income

Revenue should be recognised when;

  • It is probable that the economic benefits associated with the transaction will flow to the entity; and
  • The amount of the revenue can be measured reliably.

Revenue should be recognised on the following bases;

  • Interest should be recognised on the effective interest basis. This rate should be calculated using all related fees such as finance charges, transaction costs, premiums and discounts.
  • Royalties should be recognised using an accrual basis in accordance with the relevant agreement.
  • Dividends should be recognised when the shareholders right to receive payment is established.

Disclosures

The entity should disclose the accounting policies adopted for the recognition of revenue including the methods adopted to determine the stage of completion of transactions involving the rendering of services.

In addition, the entity should disclose the amount of each category of revenue recognised during the period, showing separately, at a minimum revenue arising from;

  • The sale of goods,
  • The rendering of services
  • Interest
  • Royalties
  • Dividends
  • Commissions
  • Grants
  • Any other significant types of revenue

What questions do you have?

We are happy to help. Please post your comment below or contact Michael O’Halloran, Assistant Audit Manager on 01 677 9000 or mohalloran@cooneycarey.ie.

If you found this article interesting, please share it with other businesses. 

Posted on February 5, 2018 by Michael O'Halloran

Revenue Recognition Under FRS102 – Part 3 Construction Contracts

The accounting treatment of the construction contract will depend on the extent to which the performance of the contract can be estimated.

1. The outcome of the construction contract can be reliably estimated

If the outcome of the construction contract can be reliably estimated, the entity should recognise contract revenue and expenses associated with the construction contract as revenue and expenses by reference to the percentage of completion method at the end of the reporting period.

The percentage of completion method requires management to employ a method of estimating how much of a contract has been completed at the end of the reporting period. The most common methods include;

  • The proportion of costs incurred to date compared to the estimated total costs (excluding costs incurred for future activities).
  • Surveyors estimates.
  • Completion of physical proportion of the contract work

Where the entity receives advance payments for work not yet performed then this should be adjusted for when calculating the percentage of work completed.

2. The outcome of the construction contract cannot be estimated reliably

If the outcome of the construction contract cannot be estimated reliably then the entity should recognise revenue only to the extent of contract costs incurred that it is probable will be recovered. The entity should recognise contract costs as an expense in the period in which they are incurred.

If it is probable that the construction contract will make a loss then the expected loss should be recognised immediately as an expense with a corresponding provision for an onerous contract. If an amount previously recognised as revenue is no longer payable then this should be recognised as an expense rather than as an adjustment to revenue.

The following disclosures are required in relation to construction contracts.

  • The amount of contract revenue recognised as revenue in the period.
  • The methods used to determine the contract revenue recognised in the period; and
  • The methods used to determine the stage of completion of contracts in progress.

In addition, the entity should present amounts due from customers for contract work and amounts due to customers for contract work separately as assets and liabilities respectively.

What questions do you have?

We are happy to help. Please post your comment below or contact Michael O’Halloran, Assistant Audit Manager on 01 677 9000 or mohalloran@cooneycarey.ie.

If you found this article interesting, please share it with other businesses. 

Posted on January 31, 2018 by Michael O'Halloran

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