After you strike a deal and the toast ends, apart from the bothering task of integrating different businesses and cultures, several accounting treatments ensue. In accordance with HKFRS 3 Business Combinations, an entity shall account for each business combination by applying the acquisition method, which requires recognizing and measuring goodwill and the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. The allocation of purchase price into various assets and liabilities acquired from the transaction is commonly known as purchase price allocation.

Valor’s professionals are competent and qualified in identifying and valuing following assets and liabilities commonly encountered in purchase price allocation to comply with HKFRS 3 and ASC 805:

• Goodwill
• Intangible assets
• Properties, plants and equipment
• Current assets and current liabilities

According to HKAS 36 Impairment of Assets, an asset is impaired when its carrying amount exceeds its recoverable amount. Goodwill and intangible assets with an indefinite useful life or not yet available for use are tested annually for impairment. Other applicable assets like properties, plants and equipment, intangible assets with a definite useful life or investments in subsidiaries, joint controlled entities or associates are tested for impairment if any impairment indication exists.

By comparing “value in use” and “value in sales” of an asset with its “book value”, Valor can help you in stipulating the updated carrying amount of an asset in the statement of financial position to comply with HKAS 36 or ASC 320.

In accordance with IVS 200 Businesses and Business Interests, a business is a commercial, industrial, service or investment activity. Valuation of businesses are required for different purposes including acquisitions, mergers and sales of businesses, taxation, litigation, insolvency proceedings and financial reporting. Major types of business valuation services provided by Valor are as follows:

• Goodwill
• Valuation of private businesses for introduction of new shareholders
• Valuation of private businesses for sales
• Valuation of private businesses for debt financing
• Business enterprise valuation on acquired business to estimate internal rate of return (IRR) during a purchase price allocation exercise
• Business valuation for IPOs, major or above acquisitions and disposals

Business valuation is one of the most important aspects of merger and acquisition as it will assist in arriving at the right consideration for the transaction. In order to comply with the listing rules of Hong Kong Exchanges and Clearing Limited (HKEx) and HKFRS or US GAAP, Valor can provide the following valuation services:

• Valuation of property interests in accordance with
HKEx Listing Rule Chapter 5 Valuation of and Information on Properties
• Valuation Report on mineral or petroleum assets in compliance with HKEx Listing Rule Chapter 18 Mineral Companies
• Business valuation for consideration reference in accordance with
International Valuation Standards (IVS)
• Convertible bonds, promissory notes and financial guarantees valuation in accordance with HKFRS 9 Financial Instruments
• Employee share option valuation in accordance with HKFRS 2 Share-based Payment
• Valuation of biological assets in accordance with HKAS 41 Agricultural

• Intangible Assets
• Property and Land
• Plant and Machinery
• Biological Assets
• Mineral and Petroleum Assets
• Financial Instruments

• Agricultural Products
• Automobiles
• Basic materials
• Banks
• Conglomerates
• Construction
• Mining & Energy
• Food & Beverages
• Household Goods & Electronics
• Hotels & Entertainment
• Health & Personal Care
• Industrial Goods
• Insurance
• IT Hardware
• Jewelry & Watches

• Expected Credit losses

• Operating leases / Right-of-use assets

• Exchangeable bonds

• Notes and bonds

• Structured deposits

• Long service payment obligations

• Convertible bonds and notes

• Share options and warrants

• Financial guarantees

• Currency forwards

• Call and put options

• Deferred compensation plan

Marketing-Related:

• Trademarks
• Trade names
• Service marks
• Collective marks
• Certification marks
• Trade dress
• Newspaper mastheads
• Internet domain names
• Noncompetition agreements

Customer-Related:

• Customer lists
• Order or production backlog
• Customer contracts and related customer relationships
• Non-contractual customer relationships

Technology-Related:

• Patented technology
• Computer software & mask works
• Unpatented technology
• Databases & trade secrets
• Research & development

Artistic-Related:

• Plays
• Operas
• Ballets
• Books
• Magazines
• Newspapers
• Other literary works
• Musical works
• Pictures
• Photographs
• Video and audiovisual material

Land and property held for long-term capital appreciation rather than for short-term sale in the ordinary course of business. The investment property is regarded as held for capital appreciation. Or a building owned by the entity (or held by the entity under a finance lease) and leased out under one or more operating leases. Also, a property that is being constructed or developed for future use is regarded as investment property.

Identify an asset that may be impaired. An entity is required to assess whether there is any indication that an asset may be impaired.
HKAS 36 includes a list of external and internal indicators of impairment. If there is an indication that an asset may be impaired, then the asset’s recoverable amount must be calculated.

HKAS 36 applies to land, building and investment property.

According to IVS 300, plant and equipment are a class of tangible asset that is:

• assets may be permanently attached to the land and could not be removed without substantial demolition of either the asset or any surrounding structure or building

• an individual machine may be part of an integrated production line where its functionality is dependent upon other assets.

The valuation will need to consider the asset’s technical specification, remaining physical life, condition and environmental issues that may impact on value.

Valuation approaches commonly used for plant and equipment valuations include:

• Market approach – commonly adopted for motor vehicles, mobile plant, general purpose machinery, etc.

• Income approach – usually problematic to apply but in some circumstances may be used as a primary valuation approach or as a check method.

• Cost approach – commonly adopted for specialised plant and equipment. The cost approach is normally based on the modern equivalent asset (MEA) at the date of valuation. The replacement cost adopted should reflect indirect costs such design and engineering fees and finance costs. The replacement cost is then adjusted for obsolescence which includes physical, functional and economic obsolescence.

As stated in HKAS 41 / IAS 41 Agriculture, agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Agricultural activity covers a diverse range of activities; for example, raising livestock, forestry, annual or perennial cropping, cultivating orchards and plantations, floriculture, and aquaculture (including fish farming).

Biological assets and agricultural produce shall be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell.

Valor’s professionals are familiar with the sampling, assessment, production forecast and financial modeling of the following biological assets:

• Forestry
• Fruit trees
• Tea tress
• Livestock
• Poultry

According to HKEx Listing Rules Chapter 18, a mineral company proposing to acquire or dispose of assets which are solely or mainly mineral or petroleum assets as part of a relevant notifiable transaction must in the case of a major (or above) acquisition, produce a valuation report prepared by a competent evaluator, which must form part of the relevant circular, on the mineral or petroleum assets being acquired as part of the relevant notifiable transaction. A mineral company must ensure that any valuation of its mineral or petroleum Assets is prepared under the VALMIN Code, SAMVAL Code, CIMVAL or such other code approved by HKEx from time to time.

Valor is unique in the industry to have both experience and expertise in both mining and finance industries, to utilize sophisticated and well-found quantitative methods to unveil your value deep under the ground.

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