Methods of Valuation
- Valuation at cost minus depreciation: With cost as the basis of valuation, the inventories show the total of sums actually put into the business and amount depreciated over time. This method is commonly used for such working assets as machinery and breeding livestock.
- Valuation at Cost or market prices whichever is lower: Valuation is estimated at the cost or the market price, whichever is lower. For example, for valuing purchased farm supplies.
- Valuation at Net selling price: This means the price which could probably be obtained for the asset if marketed, less the cost of marketing. This conforms more closely to present worth. This method is used for those items that are held primarily for sale.
- Valuation by Replacement cost minus depreciation: This method is to value the assets at what cost to reproduce them at present prices and under present methods of production. This method is best suited for long-lived assets such as buildings.
- Valuation by Income capitalization: this method is appropriate for the farm assets whose contribution to the income of the farm business can be measure and which have a long life.
The capitalization formula is : V=R/r
Where, V=Value in Rupees, R=constant income over infinite number of years in future and r= Rate of interest