Question

Assets acquired in a lump-sum purchase are valued based on. Their assessed valuation. Their relative fair values. The present value of their future cash flows. Their cost plus the difference between their cost and fair values

Answer 1

Answer:

Their relative fair values

Explanation:

The relative fair value method is mainly used in the determination of straight debt that is similar, warrantee, or tradable options. When different assets have been purchased, it is common for their purchase prices not to separate individually out the total cash that would be paid for these assets. But these assets will be most likely to be depreciated at rates that are not similar. Therefore, the relative fair value method will be the best and most effective technique that would be used in the allocation of total purchase costs for each of the available assets. This technique will depend mainly on the appraised fair market value for the assets being considers. The goal, in this case, is to allocate the total cost of purchasing through the use of relatively reasonable value methods as the main formula.

Asset allocation = (Purchase Cost) * (Asset FMV/Total FMV)

Where FMV is the Fair Market Value

Usually, a lump-sum purchase will occur where different assets have been acquired mainly from a similar price. Therefore, each of these assets will have to be recorded differently (fixed assets), specifically in an accounting record. To this, the purchase price will be allocated among the available assets acquired based mainly on the fair market values. Relative fair market value can be considered as a method of valuations in consideration of the assets of an acquired –business. In this case, a basket purchase price (lump sum) will be allocated to these assets. All the assets will be treated as a group. As a result, the relative fair value can help investors, particularly when it comes to choosing among different investments, particularly those that are available at any given time. The method will look mainly at relevant management, economic data, and footnotes, which are essential in the assessment of value relative of any given stock to its peer.