What is the Adjusted Book Value Method?

Does anyone really know what Adjusted Book Value Method is? I think….not. I’ve struggled to find the correct answer for weeks. Here is what I’ve learned.

What is the Adjusted Book Value Method?

The adjusted book value approach is a valuation approach based on the balance sheet.

The “adjusted book value approach” involves adjusting the business’ assets and liabilities to their fair market values. Alternatively, according to the approach, the various assets and liabilities in the balance sheet must be checked and adjusted.

What is the Formula of the Adjusted Book Value Method?

At the first step, the various sections in the balance sheet are divided into 2 main groups:

non-monetary items

monetary items

Non-monetary items:

Its Fair value is usually determined by professional valuations (by an appraiser). 

Example: fixed assets

The monetary items are divided into 2:

- short-term monetary items - their market value is similar to their book value.

Examples:

Current assets: cash, customers

Current liabilities: banks, suppliers

Long-term monetary items - their market value is derived from the interest rate. These items must be adjusted if there has been a change in the interest rate since they were issued. 

Example: Long-term commitments

Conclusion

In conclusion, in the above paragraphs, we explained the Adjusted Book Value Method issue. We would love to hear your notes regarding our blog post.

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