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What is the difference between Liquidation Value and Going Concern Value?
A business may need to know the value of its assets in certain conditions, such as when the business is sold or the assets are replaced. In such circumstances, liquidation and going concern value helps to determine the value of the business. There are differences between liquidation and going concern values.
Liquidation Value
As the name suggests liquidation value shows the value of its assets being sold and liquidity obtained from them. Liquidation value is considered after the termination of the business usually when it is sold.
Generally, intangible assets are not calculated while calculating the liquidation value as the prices of intangibles are not considered as operations of the business have already been ceased. Liquidation value is usually the least amount a business can expect while being sold.
Going Concern Value
The going concern value is somewhat similar but the value is considered for an in-operation firm. It may include the value of intangible assets too. Usually going concern value of a firm is higher than its liquidation value.
Difference between Liquidation Value and Going Concern Value
Although both liquidation and going concern values represent selling assets, going concerned is done when the business is ongoing. On the other hand, liquidation value is applied to firms that have been closed or when the operations of the company have been ceased.
Going concern value considers intangible assets while calculating the firm's value while liquidation value does not consider the value of intangibles as the company has ceased operation.
The going concern value of a firm is always more than the liquidation value of the company as going concern value is applied on an ongoing company while liquidation is applied to ceased organizations.
Going concern value is also higher in amount because it represents the future value of the asset which will be more than the present value offered by the liquidation method. Liquidation is considered depreciation in the value of assets.
Liquidation value is kept low by its owners because there is a very limited number of buyers of the closed firm. On the other hand, going concerns are related to running businesses, so the value of the latter would be automatically higher.
Points to Note
Liquidation Value is the minimum value of a firm the operation of which has been ceased.
Going Concern Value considers the future value of the business and hence priced higher than liquidation value.
There are a number of reasons why Going Concern is valued higher than Liquidation Value. Closed operations, the lesser value of tangible assets, and exclusion of intangibles are some of the reasons.
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