A valuation method that is more realistic than the balance sheet technique, because it adjusts book value to reflect actual market value, is the:
A) excess earnings method.
B) market approach.
C) capitalization method.
D) adjusted balance sheet method.

Question

Quizplus · Accepted Answer

The adjusted balance sheet method adjusts the book value of assets and liabilities on the balance sheet to reflect their current market value. This makes it a more realistic valuation method as it accounts for changes in the market and inflation. The excess earnings method and capitalization method are both income-based valuation methods and the market approach looks at comparable sales of similar businesses. While these methods may also be used for valuation, they do not directly adjust book value to reflect market value.

A Valuation Method That Is More Realistic Than the Balance