Liquidation value – highlights. What is the difference between liquidation value and market value?

Calculation of liquidation value is relevant when it is necessary to sell the assets of an enterprise in a short time. Allows you to quickly sell objects at the best price. The price should be attractive to potential clients, but not too low. Determining it will require taking into account many factors.

What is salvage value?

Liquidation value– this is the price of the enterprise’s assets, from which sales costs are subtracted.

The decrease in value is due to the need to sell objects in a short time, which arose as a result of the following factors:

• companies.
• The need for settlements with creditors.
• Sale of the enterprise.
• Optimization of production capacity.
• The need to purchase new equipment to replace outdated ones.
• Changing the direction of the enterprise's activity.

Expenses for commission fees, transportation, advertising, and storage are deducted from the real value of assets. A discount is provided to quickly attract buyers. As a result of all deductions, the value of the assets decreases. The market price for properties is almost always higher than the liquidation value.

IMPORTANT! Selling at liquidation value can be financially beneficial to the business. These cases are typical when there is an acute demand for the asset being sold and an increase in prices for it. In such a situation, the company can sell the property at a cost that exceeds standard prices.

Types of liquidation value

Liquidation value can reflect various indicators. It is divided into the following types:

1. Short-term or forced. Formed as a result of urgent sale of objects. Due to the tight deadlines, the cost is reduced to a minimum. This indicator may be required when calculating debts that cannot be deferred.
2. Medium term. A relatively long time has been allocated for the sale of assets. The manager's task is to sell objects at a cost close to the market price. The possibility of deferring the sale allows you to competently carry out an advertising campaign and find buyers.
3. Long-term. Long-term salvage value is determined when assets need to be written off. In this case, the company will not receive any funds for the objects.

Typically, liquidation value refers to prices for the sale of assets. The price reduction will depend on two variables: the circumstances of the implementation and the professionalism of the manager.

Procedure for assessing liquidation value

Correct determination of drugs allows you to reduce company costs. In favorable circumstances, the sale of assets can even bring profit. Cost determination can be divided into the following stages:

1. Analysis of information obtained from accounting. This information allows you to determine the book value of assets. As part of this stage, the availability of the property being sold must be verified. The real market value of the objects is revealed.
2. Determination of sales costs. It is necessary to establish a list of likely expenses during the sale. These include spending on advertising, posting ads, and searching for a client. You also need to consider the cost of storing assets. At the second stage, the feasibility of the sale is determined. Selling assets is not always the best option. If the costs exceed the salvage value, it is easier to destroy the object.
3. Development of a liquidation schedule for each facility. A separate schedule for each asset is necessary because some objects are quite easy to sell, while selling others will take a long time to find a buyer.
4. Determining the amount of reduction in value. First of all, the cost is reduced for those objects that are difficult to implement. An attractive discount plays a role in quickly attracting customers. Assets for which there is acute demand can be sold at a price close to the market value.
5. Sales organization. Actions are taken aimed directly at the sale of property. They may include advertising campaigns and customer searches. If the sale is found to be inappropriate, the property is destroyed.

It is recommended to rely not on a quick sale, but on maximizing profit from the sale. Typically, the manager is looking for the maximum price at which buyers will appear in the near future. Its specific size is determined by the type of asset. For example, it is possible to sell new equipment, for which there is acute demand, at market value. With outdated technology, such a number will not work.

Formula for calculations

There are several formulas for determining liquidation value. The most relevant is the one that allows you to bring prices closer to market prices:

LP = Market value x (1 - Coefficient for forced sale)

The coefficient can be 0.1 - 0.5 or 10 - 50%. Its exact value is determined depending on the market price of the asset. The coefficient is established as a result of an expert assessment. It depends on the following factors:

• expected implementation timeframe;
• depreciation of equipment and its type;
• market valuation of the asset;
• general situation in the required market segment.

If it is impossible to conduct an expert assessment, the coefficient is set at the lower limit. That is, it will be 0.5.

Calculation examples

The company urgently sells equipment for settlements with creditors. Its market value is 50,000 rubles. The forced sales coefficient was not calculated; the lower level was taken as a basis. The calculation of drugs will be as follows:

50,000 multiplied by (1 - 0.5)

As a result, we receive a liquidation value equal to 25 thousand rubles.

IMPORTANT! The coefficient depends not only on the characteristics of the assets, but also on a number of other factors: timing of sale, level of demand. The more opportunities there are for the implementation of an object, the higher the coefficient will be. As the ratio increases, the liquidation value also increases.

Nuances when determining drugs

When establishing the liquidation value, two main errors are observed: overestimating or underestimating the price. In the first case, the asset will not be purchased, which will lead to problems. For example, the inability to pay off debts. In the second case, the company will not receive the profit that it could have received.

So.
Liquidation value is the valuation of an asset for sale within a short period of time. Its definition is divided into a number of stages, during which the question of the feasibility of implementation is resolved. The LP is calculated based on a formula that includes the market value of assets. The assessment results depend on many factors, including the technical characteristics of the object, the demand for it, and the time allotted for implementation.

Most companies, before selling an asset, develop a plan for its sale at its liquidation value. This is necessary to evaluate the entire operating business, for example, to sell it or assess its condition, for the possibility of introducing innovations and other reasons.

The concept of liquidation value

First you need to understand what the liquidation value itself is.

This cost is calculated in the event of bankruptcy of the company or the need to pay off debts with the assets of the company or its individual components.

• It is also possible to sell a company at liquidation value when selling the company as a whole or introducing innovative technologies. After all, it is worth saying that outdated technologies can lead to a decrease in revenue.
• The calculation of liquidation value can be minimized in order to introduce any innovative technologies into production as soon as possible, which will allow more profits to be made in the future, since the products will be produced using the latest technologies.
• An urgent sale of part of the assets may also arise if the owner wants to start work in a completely different direction and for this he needs cash. Selling part of the assets can be much more profitable for the owner than taking out a loan at high interest rates and paying it off for several more years.

In general, the liquidation value is generally always lower than the market price for the same assets. However, with proper management, this price can be comparable to standard prices on the market.

If the sale of assets occurs during a time of high demand for a given category of product, then it can be sold more profitably, that is, even higher than the market value of a similar product during a period of decline in demand.

If the sale of a company does not imply its immediate sale, but takes a significant period of time or consists of several stages (as, for example, during the bankruptcy procedure of a company), the assets can be sold at a price equal to the market price.

Classification of liquidation value

The concept of liquidation value can include several different indicators. To understand the full essence of the concept of “liquidation value”, it is necessary to consider the classification.

There are several types of costs, namely:

1. short-term (forced);
2. mid-term;
3. long-term (this is the stage of the impossibility of selling an asset, that is, the need to write it off).

In the first case, the asset is sold as soon as possible. An example would be the need for settlements with creditors in the shortest possible time.

In the second case, it is assumed that the company’s asset will be sold over a fairly long period of time. An example is the bankruptcy of a company. The larger the company, the longer it will take to sell its assets. In this case, the main factor will be the sale of the asset at the highest possible price, as close as possible to market prices.

In the third case, a situation is assumed in which a negative effect occurs, since the asset is written off. In this case, the company will receive absolutely no proceeds from the sale of assets.

Having reflected the concept of liquidation value and classification, it is necessary to study the calculation of this indicator, which occurs in several stages.

Calculation of liquidation value

• First, you need to develop a schedule that will show all the stages of liquidation of a company’s assets.
• You then need to calculate the value of the asset and any likely costs that may arise in the process of selling the asset. These costs depend on the urgency of the sale of the asset and all other components.
• It is also necessary to take into account the company's accounts payable at the time of sale. This indicator is calculated based on the company's balance sheet.
• Before starting work, it is necessary to conduct an inventory of the company’s property complex.
• Sometimes the gross proceeds from the sale of assets and the operating profit received during the liquidation of the company are also calculated.

The formula for calculating liquidation value includes the following components:

• the present market value of the asset (current);
• correction values;
• indicators reflecting the time frame within which the asset must be sold.

All these components are calculated in a certain sequence.

• First you need to calculate the amount of correction values. It will depend on the timing of implementation, demand for the asset, and the main characteristics of the object. On average, this indicator is 0.3. Thus, the liquidation value is lower than the market value by an average of 30 percent.
• Then this coefficient must be subtracted from one and multiplied by the market value of this asset. The accuracy of the indicator will be influenced by the correct calculation of the correction value, since the market value can be calculated without much effort.
• For calculations, you may need various statistical information that would reflect such transactions. However, the adjustment value for each asset must still be calculated independently.

Factors influencing

There are several factors that influence the liquidation value.

1. Firstly, the time frame within which assets must be sold. Very often, the price directly depends on the time of sale of the asset. As stated earlier, the liquidation value depends on the basic characteristics inherent in the asset. These factors are called internal.
2. External factors include supply and demand for similar assets on the market. The external factor also includes the political situation in the country, since this factor can influence the size of the market for a particular product. It is possible that a situation will arise in which representatives of certain countries simply will not be able to purchase this asset due to prohibitions, or it will be impossible to offer their goods to non-residents.

Specifics of liquidated objects, main approaches when valuing company assets

To begin with, you need to clearly understand that at such an object there is no or often incorrect accounting of all fixed assets and their legal registration. This leads to restrictions on the timing of the sale, since the registration of assets takes a significant period of time and can last several months.

Technically, objects are generally not ready for operation and require additional investments, which leads to a decrease in demand for the purchase of such objects. Depreciation at such facilities is at a fairly high level; they do not meet modern market requirements.

When assessing an object, you can use the following approaches:

• Profitable. They are based on the benefit that the buyer will receive in the future from using this object.
• Comparative. They are based on an analysis of the prices of similar objects.
• Expensive. They are based on the calculation of all expenses incurred by the buyer in the process of acquiring the asset.

Most often in practice, a comparative approach is used, since due to time constraints it is not always possible to provide all the information about the characteristics of an object, which is why the buyer cannot correctly determine the cost of such an object in the modern market. However, situations may arise in which it will be impossible to use the comparative method.

All this tells us that it is important to choose the right approach to assessing the liquidation value of an object in order to obtain the greatest benefit from its sale.

For this purpose, various specialists are involved who will carry out an independent analysis of your property. To do this, an agreement is concluded with specialized organizations that will carry out this assessment at the proper level. Such specialists include:

• credit managers;
• arbitration managers;
• senior managers.

Involving such specialists allows you to determine the liquidation value of an object as accurately as possible, which is the main component of the final liquidation process.

How do liquidation values ​​relate to residual and initial values?

When calculating the liquidation value, they often resort to information about the size of the residual value of the asset. Residual value is the original price of an item minus depreciation or wear and tear.

If, when calculating the residual value, it turns out that the asset is technically well equipped and meets modern requirements, then the residual value of such an object will be approximately at the same level as the liquidation value. Conversely, if the object is already outdated from a technical point of view, its value will differ significantly from the residual value.

In theory, there is also the fact that the initial cost can be equal to the liquidation value. A similar situation may arise if the depreciation of such an object is minimal or the demand for this object has increased and is many times greater than the supply of such a product.

• The salvage value can be significantly influenced by the location where the asset is located and the costs that may be incurred in moving the asset to a new location. It is possible that the costs will be so high that the seller will have to reduce the price significantly to justify the buyer's expense. However, a situation may also arise that by moving another object, the buyer will suffer even greater losses and your asset will be more attractive to him, even if at a price higher than the hard-to-find asset. In this case, the price inflated by the seller will be justified.
• Another factor that influences the liquidation value is changes in exchange rates. If you make an urgent sale of an object, this does not always lead to the loss of additional profit. A situation may arise when the initial cost is less than the liquidation value. This situation is atypical in the modern market and occurs if there is an increase in the price of the currency in which the object was purchased in the past.

Non-residents are guided in their activities by such factors. Due to the decline in exchange rates in the country where the company is registered, non-residents can purchase this object, having previously calculated that, translated into their exchange rate, the purchase will be cheaper than purchasing the same object on their territory. Based on this factor, you need to understand that going global can bring you good savings on the purchase of an object owned by foreign citizens.

Many people cite the crisis as another factor influencing liquidation value. During this period, a number of additional features take place. This is due to the fact that the manager cannot always accurately calculate the liquidation price of the object. This factor can have a positive effect on the liquidation price of the property.

With high fluctuations in the financial situation in the country, peak situations arise when selling an object at the liquidation price becomes profitable. This situation can only arise during periods of crisis. During periods of crisis, it is very difficult to identify investor preferences. During this period, a situation may arise that the liquidation value drops so much that profits become minimal and cannot repay the company’s debts.

During this period, it is very good to resume negotiations with creditors, since they have the ability to correctly assess the market situation and sometimes make concessions in order to retain potential clients.

Salvage value methods

Many people name two main methods for finding liquidation value:

1. Direct method;
2. Indirect method.

Direct method

It manifests itself in the process of comparing the stages of sale of assets similar to each other; all factors that directly affect the value of the asset are analyzed. This method is effective if the company's managers have reliable statistical information that reflects all similar transactions previously concluded by other market participants.

Indirect method

It is implemented by finding values ​​through the analysis of market data, such as the sale period, the company’s current accounts payable, etc. This method is used if the company's managers do not have information about such transactions, and it is not possible to carry out an analysis using the direct method.

To use the indirect method, you need to know such an indicator as “discount on the fact of forced sale of goods.” This indicator can be determined in several ways:

• the method of comparing paired sales (comparing prices for sales of similar objects under standard conditions and in the shortest possible time);
• by simply analyzing the main properties of the object being implemented;
• expert method.

The main method is the expert method.

To determine a discount, it is necessary to analyze all components of the object, determine the discount for each component and add it into a single cost.

The liquidation value is assessed so that the potential buyer correctly evaluates the property in all respects and makes the right decision for himself to purchase it.

To summarize the above, it is worth noting several features. It is necessary to sell objects if:

• arises the inevitability of bankruptcy of the company;
• the company owner wishes move to another market segment;
• arose large accounts payable, which cannot be repaid by other means;
• It was necessary technical re-equipment of machines and equipment.

Before starting to calculate indicators, it is necessary to take into account the market value of the object, its initial cost and other factors directly or indirectly related to the object.

The question of liquidation value arises at the moment when the organization completely loses the ability to generate other types of value, as well as its economic and business independence. It is important to consider that the company will still retain all its obligations to other enterprises and other business partners, as well as investors, as provided for by law. Thus, liquidation value is an important concept used in the merger of legal entities, the complete liquidation of any of them, as well as in the process of bankruptcy of an enterprise.

The main essence of the concept

However, in practice it is applied exclusively to organizations that are ceasing to operate and in case of their complete bankruptcy. During these processes, the main essence of liquidation value is most clearly manifested: any asset that is not capable of producing profit automatically becomes a liability. This is all the more important because the very concept of “liquidation value” is a term used in relation to dependent companies that are subject to dissolution or going through bankruptcy proceedings.

It is important to remember one circumstance: at the moment when an asset becomes a liability, it immediately changes its value (in relation to the book price), which is determined by the specific situation on the market. However, the situation is classic, fully consistent with the statement: “The sale of debt obligations is possible only at a discount.” The legal form of this asset also changes. From a means of generating profit, it turns into a liability for debt, and therefore is a hypothetical source of funds (“transformed value”).

Economic definition of the concept

Now let’s look at the definition of the very concept of “liquidation value”. This word refers to the estimated value of a property if it is forced to be sold. In some cases, this may be the name for the profit received as a result of the sale of equipment with an expired operational life, dismantled from the production sites of the enterprise.

This is where the term “liquidation dividends” comes from. In fact, it's the same thing. It is important to understand that they can only be paid if all obligations to creditors and partners have already been covered. In some countries, these funds may be treated as capital income and therefore not subject to tax. It must be remembered that in the United States another approach to determining liquidation value is also common.

The reasoning of the American authors is quite simple: “No matter how the term “liquidation value” is used, this definition in any case assumes that the company will inevitably be dissolved and all its property will be auctioned off.” The prerequisites for determining this type of cost are as follows:

• Simple, orderly liquidation. This is the sale of assets carried out within a reasonable time. In this case, you can get a justified and fairly high price for each of them.
• Forced liquidation. In this case, you have to sell the assets as quickly as possible, as a result of which they can significantly lose their value. Please note that the term “auction value” is often used.

It should be taken into account that the liquidation value method (its accounting, more precisely) assumes not only the net income received as a result of the sale of material assets of the liquidated company, but also all expenses associated with their maintenance, as well as losses incurred at the same time. In general, we can come to the only logical conclusion: this kind of cost is often determined by the lowest possible price on the market, and therefore, in most cases, cannot cover all of the company’s debt obligations.

Accounting assets and liabilities

It is very important to consider the method of linking to an accounting asset or liability. The well-known Miller-Modigliani postulates can help a specialist.

First, a company cannot under any circumstances change the value of its underlying assets simply by splitting its cash flows into two streams. The fact is that the market price of a company can only be determined by the real means of production and other material assets it has. So the capital structure is practically independent of the firm's investment decisions. Secondly, the dividend policy also in no way can determine the market value of the organization.

If we accept these rules, then it becomes clear why the liquidation value method does not recognize the determination of the real price of an organization based on its accounting liabilities. But we must not forget that in the real capital market such an approach is not only completely justified, but is also quite often used in practice.

That is why, when determining liquidation value, economists pay increased attention to the operating assets of the enterprise. In many ways, this approach is due to the fact that when an enterprise collapses, the main mechanism for making a profit is destroyed. So it makes more sense to evaluate each individual element of the asset separately.

Western approaches to identifying liquidation value

Now let's turn to the practice of Western economists. According to the works of J. Fishman, the calculation of liquidation value assumes that the income remaining after the sale of the enterprise's assets and payment of debt is reduced to normal market value. Thus, the price we are considering is the discounted cash balance that the owner of the company receives after the sale of its assets and compensation of all liabilities. The same amount can be considered as the value of a share in a joint stock company.

Simply put, these funds can be used to pay shareholders. Therefore, liquidation value can be understood more broadly. But at the same time, it is important to understand that only an organization that can no longer independently generate income can be assessed in this way, and therefore its assets must be assessed hypothetically. According to global practices, the calculation of liquidation value can be used in the following situations:

• Complete dissolution of the company.
• The profit received is incomparably small in comparison with the cost of existing assets, and therefore the company can be valued more expensive precisely based on them. In this case (very rarely), the residual liquidation value can be used to determine the real price of the company.
• Many subsidiaries have appeared in the structure of the organization, which are simply hanging as a dead weight and are distinguished by purely negative financial indicators.
• If it is necessary to reorganize the company.

This list of situations in which it is necessary to understand what the liquidation value of equipment and other assets is is often used by domestic specialists. The difference from Western practice is that the latter also pays increased attention to the time required to sell material assets, since the amount of profit received directly depends on this circumstance. Therefore, there are two categories of this concept:

• The cost of forced sales, including through an auction.
• Regular price, which can only be obtained during normal sales times. It should be remembered that liquidation carried out within six to nine months is considered “normal”. As you might guess, during this time it is possible to find a more favorable price for each asset.

In this regard, the liquidation value of the equipment is extremely important, since the price of mechanical means of production in many cases strongly depends on the current economic situation on the market: it often makes sense to wait a couple of months until the cost of the same machines increases.

Determining the amount of an accounting liability

This calculation is possible using several options at once. Let's look at the most common methods used in our country. Let us note that the first approach was specially developed and tested when determining the value of some JSC. It is important to remember that the company's shares must be quoted on either a domestic or foreign exchange at the time of liquidation. This approach assumes that the company needs to be sold in its entirety, without breaking the value of its assets into parts.

How is liquidation value calculated in this case? Its formula is quite simple: “price / earnings” (P/E). It is necessary to remember that these indicators must be taken for at least the last three months, and the company’s real income must be actually confirmed. In what cases is it rational to sell the assets of an OJSC directly at the auction price? Practice shows that this is acceptable if the difference with market prices does not exceed 10%. If this figure is higher, it makes sense to wait and get a better offer.

Sometimes it is necessary to introduce reduction factors. At the same time, it is extremely important to understand that the liquidation value of real estate (for example) is always calculated taking into account the fact that, hypothetically, it is possible to produce products using the equipment being sold and make a profit. Here are some basic rules for determining this indicator:

• If there is such a possibility, then the cost is always determined based on the latest quotes. This is the most reliable method, as it gives an idea of ​​​​existing real market prices.
• It is very important to develop a system of reduction factors that can be used to determine the degree of market depreciation of the company’s assets.
• It is necessary to immediately determine the possible timing of the sale of the company’s material assets, since the calculation of reduction factors largely depends on this.

Cost calculation formula

So how is liquidation value determined? The formula is given below, but for now let’s denote the concepts used in it:

• S l- the value of the liquidation value we are looking for.
• R f— market capitalization, expressed in absolute values.
• TO n is the reduction factor for a specific legal situation.
• TO c is a reduction factor associated with the time of reorganization or liquidation of the enterprise.

The formula itself looks like this:

S l = R f × (1 - K p) × (1 - K c).

Second cost calculation option

Let us assume that the reorganization or liquidation also preserves some of the company's ability to generate profits. Let us assume that the liquidation value of the property and assets of the enterprise has already been determined, but we need to find out the volume of debt obligations, since without them it is impossible to determine the net value of assets. Accordingly, the value we need is quite simple to determine, since it is the difference between the total amount of the company’s estimated material resources and its debt obligations. In this case, it is most important for us to find out the amount of debt accumulated by the organization. Below we present the necessary algorithm of actions.

For the entire period of discrete circulation, you need to calculate the amount of accumulated debt. For compound interest rates, the following formula is used:

FV = P(1 + r) n .

If a simple interest rate is used, the expression will look slightly different:

FV=P.

“What is what” in these equations? Let's break down each indicator for clarity:

• F.V.- the total amount of debt obligations that must be paid by the organization.
• P- main debt.
• r— the interest rate accepted in the agreement with creditors.
• n- the total period within which the debt must be fully repaid.

Next, we need to find out the main accounts payable, which can be taken into account as the nominal amount of debt. The same condition is true if, in case of early repayment of the debt, it is necessary to pay interest specified in advance in the agreement with the creditors. The above formulas will help with this.

If you calculate debt that is deducted from liquidation profits already received, it does not include debt obligations that have already been partially repaid by the company. If there is an overdue debt, then it is included in the final amount, taking into account all the penalties and fines that the company will have to pay for late payment of all its obligations to creditors.

As you probably already understood, the direct determination of liquidation value consists of subtracting all its debt obligations from the funds received from the sale of the assets of the enterprise. In this case, there is no particular need to use any additional coefficients, and there is no particular need to take into account the financial condition of the debtor. It should be noted that when accounting, “estimated income” and “payment reserves” should not be taken into account.

Calculating the value of an accounting asset

As in the previous case, the procedure is based on a generally accepted algorithm. And in this case, the decision to calculate the liquidation value clearly means that the enterprise is no longer considered by the state or private investors from the point of view of a single financial mechanism that can generate profit. The assessment can be carried out by professional appraisers who have such authority in our country.

It is important to remember that the estimated liquidation value of assets is somewhat different from everything we have already written about above. Firstly, when determining it, a specialist will simply be forced to take into account the real market price of an asset, and also remember that tangible assets can be used by the buyer differently than if they were used in a liquidated or reorganized enterprise. However, you need to remember that all the restrictions that we talked about above remain in full force.

All information necessary for calculations is contained in the accounting documents of the liquidated enterprise. As a rule, all this information needs to be further analyzed and verified. The balance sheet of the liquidated enterprise is accepted as of the date of its liquidation, but no later than the day the analysis begins. Important! The basis should always be a balance sheet compiled on the basis of the requirements of the Ministry of Finance of the Russian Federation.

When should balance sheet information be clarified or adjusted?

The need for this may arise in two cases:

• When, when analyzing the assets of an enterprise, it turns out that some of them were missed in the reports, and therefore the real picture of the company’s condition turns out to be blurred.
• If the dates of assessment and balance sheet do not coincide. If this is the case, adjustments need to be made. In this case, you cannot do without the help of a professional auditor, since the adjustment must take into account the characteristics of various accounting positions.

Valuation of intangible assets

As we have already said, the liquidation value of an enterprise is extremely important, taking into account tangible assets, but we did not talk about intangible ones. The fact is that only those that can be freely sold without a liquidated organization fall into this category. Only those that fully comply with this condition are included in the accounting report. Most intangible assets have no liquidation value by definition.

Valuation of fixed assets

There are no completely unusual features here: the basic methods for assessing real estate are used, but with the understanding that it is necessary to focus as much as possible on the normal market value. In addition, it is necessary to take into account the fact that the property being sold will most likely be used differently than it was at the time of its inclusion in the main production cycle. Otherwise, the price will probably be much lower, since the same machines probably won’t be able to be used elsewhere. This is the liquidation value of an object that simply cannot be used outside the liquidated enterprise. Because of this, it is necessary to use many reduction factors.

Valuation of finished products and inventories

In this case, the assessment is carried out taking into account the replacement price. It must be determined in advance by the accounting department of the liquidated enterprise, and the appraiser can only correct it. Please note that the assessment of the liquidation value in this case must take into account all the restrictions described above.

We talked about the valuation of accounting objects in ours and noted that valuation in accounting refers to the monetary measurement of accounting objects. We also that, depending on the purposes of the assessment, we distinguish the assessment made for the initial recognition of assets, during their further accounting, as well as for reporting. What place is given to liquidation value in the types of valuation? We will tell you about the use of liquidation value in accounting in our consultation.

What is salvage value?

The concept of liquidation value can be found in the Federal Law of July 29, 1998 No. 135-FZ “On Valuation Activities in the Russian Federation.” In it, liquidation value is understood as an estimated value, which represents the most probable price at which an object can be sold on the open market in conditions where the owner is forced to sell the object, and, accordingly, the period for presenting the object on the open market is less than the typical period for presenting similar objects under normal conditions.

As for the concept of liquidation value for accounting purposes, neither the Federal Law of December 6, 2011 No. 402-FZ “On Accounting” nor the PBU contains the concept of liquidation value. The accounting definition of liquidation value can only be found in the International Financial Reporting Standards, put into effect on the territory of the Russian Federation in accordance with Order of the Ministry of Finance dated December 28, 2015 No. 217n.

Thus, the definition of liquidation value in relation to fixed assets is given in International Financial Reporting Standard (IAS) 16 “Fixed Assets”. It states that the salvage value of an asset is the estimated amount that an entity would currently receive from disposal of the asset, after deducting the estimated costs of disposal, if the condition of the asset and its service life were as expected at the end of its useful life. (clause 6 of IAS 16). A similar definition of liquidation value is given in IAS 38 “Intangible Assets” (clause 8).

How to use liquidation value in accounting

The above means that the liquidation value indicator in accounting is used by those organizations that apply IFRS. Let us present some aspects of accounting for liquidation value in accordance with IAS 16, i.e. in relation to fixed assets (fixed assets).

Thus, the liquidation value of an asset is used when calculating the amount of depreciation. After all, depreciation in IFRS is calculated based not on the original cost, but on the depreciable amount of the asset (AV):

AB = PS - LS,

where PS is the initial cost of the asset or another amount taken as the initial cost;

LP is the liquidation value of the asset.

This calculation shows that for the purposes of IFRS, the amount that will be received from the disposal of a depreciable asset, i.e., the liquidation value, is not taken into account in the calculation of monthly depreciation. At the same time, in practice, the liquidation value of an asset is often insignificant and is therefore considered insignificant when calculating the depreciable amount (