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Under the report in https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012s/sa_feb12_f9_valuations.pdf the examiner is claiming that using net realisable value is unfavorable, since the companies have “intangible assets such as goodwill, knowhow, brands and customer lists”. I understand the point of the examiner, however, it appears that it goes against IFRS, which do not allow recognition of mentioned items, with good reason. How do these reconcile?
Thanks!When valuing a business, financial accounting rules and conventions are not relevant.
Imagine you were buying a company like PricewaterhouseCoopers! The realisable value of their net assets will not be so great – but you would have to pay a lot more than this because of the goodwill. The fact that you would be buying their future income stream.
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