In accounting, deprival value is the value is the method which is used for measuring the value of asset. It is not historical cost value nor fair value. It is almost actual value which has to pay by a person who will acquire the asset.
We know no one want to suffer the loss of asset. If anybody has to pay the liability to other, he can repay his liability by giving his asset but he want to justify. For example, if today a house is sold, we will get its market value RS. 50,00,000 but owner has paid Rs. 1 crore on it for its construction. So, if any lender has to take it, he should give him its deprival value or wait for getting better buyer of this house.
In normal business, deprival value is not accepted for calculating the value of assets, if any company is selling his asset. Either market value or historical cost is prefer. Now, a movement of getting best price has started in valuation of property and accounting standards are being amended for added it as one of method of valuation.
Its other name is relief value or value of asset on the basis of income generation power. Business owner will leave the asset, so, deprival value will give him highest benefit.
Following is the Formula of Deprival Value
There is not any fixed formula of calculating deprival value. But still following model is used for calculating deprival value.
1. Deprival Value is lower than replacement cost of asset.
2. Deprival Value will higher than recoverable amount of asset.
3. Deprival Value will higher than net present value of asset.
We know no one want to suffer the loss of asset. If anybody has to pay the liability to other, he can repay his liability by giving his asset but he want to justify. For example, if today a house is sold, we will get its market value RS. 50,00,000 but owner has paid Rs. 1 crore on it for its construction. So, if any lender has to take it, he should give him its deprival value or wait for getting better buyer of this house.
In normal business, deprival value is not accepted for calculating the value of assets, if any company is selling his asset. Either market value or historical cost is prefer. Now, a movement of getting best price has started in valuation of property and accounting standards are being amended for added it as one of method of valuation.
Its other name is relief value or value of asset on the basis of income generation power. Business owner will leave the asset, so, deprival value will give him highest benefit.
Following is the Formula of Deprival Value
There is not any fixed formula of calculating deprival value. But still following model is used for calculating deprival value.
1. Deprival Value is lower than replacement cost of asset.
2. Deprival Value will higher than recoverable amount of asset.
3. Deprival Value will higher than net present value of asset.
Let us know how deprival value is applied in Accounting
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