ValuAdder Business Valuation Blog

Now this one may surprise some people. You might expect being unable to find an asset that shows up on the books. But businesses may have assets in use that have been written off with a value of zero. So a seasoned business appraiser who went through a physical inventory count will never overlook the possibility that assets not found on the books can and do often exist.

How is it possible for such assets to pop up?

Common reasons for unrecorded business assets

Capital expenditure controls some companies impose could be quite limiting. So a business manager may get creative in getting the necessary machinery in place that may otherwise trip the capex ceiling. For example, splitting a big bill to acquire a piece of equipment and treating some of it as an expense is not unusual. As a result, the asset does not get recorded on the books.

Parting out old pieces of equipment to fix the new ones is another source of unexpected assets. Skilled technical staff may build a machine they need by reusing existing components. Again, such internally created equipment does not show up on the books.

New equipment vendors often take the outdated machinery as a trade-in. As a result the company gets a price reduction. But the vendor may not have a way of using the old equipment. So the company gets to keep it for a while. At times this extra capacity may come in handy. But again, no record is made of the old machine on the company’s books.

In addition, the company’s accounting records may drop a piece of equipment once it is fully depreciated. However, this does not mean that the machine is removed from service.

So there you have it. The assets you can’t find on the books may exist. Moreover, they can be adding considerable value to the company.