Accounting - the Basis for Business Decisions - Essay Example

Understand that your concerns have stemmed from an offer to buy out your business for $1,000,000 more than the net carrying value of your assets. A little reflection will show that there are a couple of reasons for this. One is that Emergent Technologies has developed a unique procedure for the mass storage of information via its SuperDisc™. As you know the patent and copyright for this invention have been lying with the US Patent Office for some time now, and it is only a matter of weeks before the patent will be registered in the name of your company.

This alone is sufficient to increase the value of net assets by $500,000. Another thing to be considered is your excellent business reputation over ten years of business. Your company and its products are well-known and have considerable goodwill among the business community. According to Meigs and Meigs (1993: p 474), goodwill can result because of the owner or product reputation, leading to extra sales and business contacts in the marketplace.

A conservative estimate by us looking at industry standards puts the value of Goodwill at $500,000 for your business at this point. Adding both the value of Goodwill and Patents will therefore revise the value of net assets upward by $1,000,000, as has been correctly estimated by your prospective buyer and his accountants. Goodwill and Patents are both intangible assets and therefore difficult to value correctly.

We hope we have been of some assistance in assuaging your worries and you may go ahead and take a decision as per this revised estimate. We look forward to providing you with any further assistance you may require in this matter. Read More