ED/Ind VS- 101/2018-2019/9

Exposure Draft of Indian Valuation Standard 101

(Last date for Comments: May 12, 2018)

Issued by Valuation Standards Board

(Set up under an Act of Parliament)

Exposure Draft

Indian Valuation Standard 101 Definitions

Following is the Exposure Draft of the Indian Valuation Standard 101 Definitions issued by the Valuation Standards Board of the Institute of Chartered Accountants of India, for comments.

The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide suggestions for alternative wording.

Comments can be submitted using one of the following methods, so as to be received not later than May 12, 2018.

1. Electronically: Click on http: https://goo.gl/forms/ahzawCoBkw48QZ693 to submit comments online. (Preferred method)

2. Email: Comments can be sent to [email protected]

3. Postal: Secretary, Valuation Standards Board, The Institute of Chartered Accountants of India, ICAI Bhawan, A- 29, Sector- 62, Noida – 203209.

Further clarifications on any aspect of this Exposure Draft may be sought by e-mail to [email protected]

Exposure Draft

Indian Valuation Standard- 101



Exposure Draft

Indian Valuation Standard- 101


(The Exposure Draft of the Indian Valuation Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. (This Exposure Draft of the Indian Valuation Standard should be read in the context of Framework for the Preparation of Valuation Report in accordance with Indian Valuation Standards)


1. The objective of this valuation standard is to prescribe specific definitions and principles which are applicable to the Indian Valuation Standards, dealt specifically in other standards. The definitions enunciated in this Standard shall guide and form the basis for certain terms used in other valuation standards prescribed herein.

2. The glossary contained in this standard defines the terms used in the Indian Valuation Standards. The glossary may not contain certain definitions which are considered to be basic from finance and accounting perspective as the professionals are expected to have basic knowledge and understanding of such terms.


3. The terms defined in this Standard do not apply in valuation where a valuer is required to use a definition prescribed by any law, regulations, rules or directions of any government or regulatory authority.

4. In case the valuer is required to use a definition that significantly depart from those contained herein, the valuer shall explain the reason for departure and disclose in the valuation report.

Significant Elements

5. While undertaking a valuation engagement, a valuer shall refer the terms defined in this Standard.


6. The following definitions provide an inclusive but not exhaustive list of terms which will be
generally used during the course of a valuation engagement:

i. Active Market: Active Market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Active market would refer to one where activity / transaction is ongoing and as defined in the guidelines issued by SEBI.

ii. Asset: The word asset would refer to the assets that need to be valued during an engagement and will also include a group of assets, a liability or a group of liabilities. Any reference to the term asset also includes liability.

iii. As-is-where-is basis: The term as-is-where-is basis will consider the existing use of the asset which may or may not be its highest and best use.

iv. Business Valuation: It is the act or process of determining the value of a business enterprise or ownership interest therein.

v. Client: Client would mean an entity or a person for whom valuation is conducted.

vi. Comparable Companies Multiple Method: This method is also known as Guideline Public Company Method, involves valuing an asset based on market multiples derived from prices of market comparables traded on active market.

vii. Comparable Transaction Multiple Method: It is also known as ‘Guideline Transaction Method’ involves valuing an asset based on transaction multiples derived from prices paid in transactions of asset to be valued /market comparables (comparable transactions).

viii. Control Premium: Control Premium is an amount that a buyer is willing to pay over the current market price of a publicly-traded company to acquire a controlling interest in such company. It is opposite of a discount for lack of control to be applied in case of valuation of a non-controlling/minority interest.

ix. Cost approach: It is a valuation technique that reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost).

x. Discount Rate: Discount Rate is the return expected by a market participant from a particular investment and shall reflect not only the time value of money but also the risk inherent in the asset being valued as well as the risk inherent in achieving the future cash flows.

xi. Discounted Cash Flow (‘DCF’) Method: The DCF method values the asset by discounting the cash flows expected to be generated by the asset for the explicit forecast period and also the perpetuity value (or terminal value) in case of indefinite lived assets. Terminal value is the value of the asset at the end of the explicit forecast period.

xii. Documentation: The term documentation includes the record of valuation procedures performed, relevant evidence obtained, and conclusions that the valuer has reached.

xiii. Fair value: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the valuation date.

xiv. Forced transaction: Forced transaction is a circumstance where a seller is under constraints to sell an asset without appropriate marketing period or efforts to market such asset.

xv. Going concern value: It refers to the value of a business enterprise that is expected to continue to operate in the future

xvi. Goodwill: The term goodwill is defined as an asset representing the future economic benefits arising from a business, business interest or a group of assets.

xvii. Highest and best use: The highest and best use is the use of a non- financial asset by market participants that would maximise the value of the asset or the group of assets (e.g., a business) within which the asset would be used.

xviii. Income approach: It is a valuation technique that converts future amounts (eg cash flows or income and expenses) to a single current (i.e., discounted) amount. The fair value measurement is determined on the basis of the value indicated by current market expectations about those future amounts.

xix. Intangible Asset: An intangible asset is an identifiable non-monetary asset without physical substance.

xx. Integration cost: It refers to additional one time/ recurring expenses which may need to be incurred by an acquirer.

xxi. Jurisdiction: The term jurisdiction will include the regulatory and legal environment in the boundaries of which the valuation is conducted. The jurisdiction will depend on the relevant government law and regulation.

xxii. Liquidation value: It is the amount that will be realised on sale of an asset or a group of assets when the business is terminated.

xxiii. Market approach: Market approach is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (i.e., similar) assets, liabilities or a group of assets and liabilities, such as a business.

xxiv. Market participant: The relevant hypothetical participants to the valuation who will be considered for the purpose of fair valuation.

xxv. Multi-Period Excess Earnings Method (MEEM): MEEM is generally used for valuing intangible asset that is leading or the most significant intangible asset out of group of intangible assets being valued.

xxvi. Observable inputs: Inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability.

xxvii. Orderly liquidation: An orderly liquidation refers to the realisable value of an asset in the event of a liquidation after allowing appropriate marketing efforts and a reasonable period of time to market the asset on an as-is, where-is basis.

xxviii. Orderly transaction: Orderly transaction is a transaction that assumes exposure to the market for a period before the valuation date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities and it is not a forced transaction. The length of exposure time will vary according to the type of asset and market conditions.

xxix. Participant specific value: Participant specific value is the estimated value of an asset or liability considering specific advantages or disadvantages of either of the owner or identified acquirer or identified participants.

xxx. Premise of value: Premise of value refers to the conditions how an asset is deployed.

xxxi. Present value: It is an integral tool used in the income approach to link future amounts (eg. cash flows or values) to a present amount using a discount rate.

xxxii. Purpose: The word purpose implies the reason for which valuation is being conducted.

xxxiii. Relief from Royalty (RFR) Method: RFR Method is generally adopted for valuing intangible assets that are subject to licensing, such as trademarks, patents, brands, etc.

xxxiv. Replacement Cost Method: It is also known as ‘Depreciated Replacement Cost Method’ involves valuing an asset based on the cost, that a market participant shall have to incur to recreate an asset with substantially the same utility (‘comparable utility’) as that of the asset to be valued, adjusted for obsolescence.

xxxv. Reproduction Cost Method: This method involves valuing an asset based on the cost that a market participant shall have to incur to recreate a replica of the asset to be valued, adjusted for obsolescence.

xxxvi. Rule of Thumb or Benchmark Method: Rule of thumb or benchmark indicator is used as a reasonable check against the values determined by the use of other valuation approaches in a valuation engagement.

xxxvii. Scope of work: It describes the work to be performed, responsibilities and confidentiality obligations of the Client and the valuer respectively, and limitation of the valuation engagement.

xxxviii. Significant / material: While considering any particular aspect to be significant / material from a valuation standpoint is a valuer’s professional judgement, any aspect of valuation will be significant / material if its application or ignorance can significantly change or impact the overall value.

xxxix. Subsequent Event: An event that occurs subsequent to the valuation date could affect the value; such an occurrence is referred to as a subsequent event.

xl. Synergies: Synergies means when the combining effect of two or more assets or group of assets and liabilities or two or more entities in terms of their value and benefits is greater than that of their individual values on a standalone basis.

xli. Terminal value: Terminal value represents the present value at the end of explicit forecast period of all subsequent cash flows to the end of the life of the asset or into perpetuity if the asset has an indefinite life.

xlii. Transaction costs: Transaction costs are the costs to sell an asset or transfer a liability in the principle (or most advantageous) market for the asset that are directly attributable to the disposal of the asset or transfer of liability and which meet both the following criteria:

(a) they result directly from and are essential to that transaction;

(b) they would not have been incurred by the entity, had the decision to sell the asset or transfer the liability not been made.

xliii. Unobservable inputs: Inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.

xliv. Value: A value is an estimate of the value of a business or business ownership interest, arrived at by applying the valuation procedures appropriate for a valuation engagement and using professional judgment as to the value or range of values based on those procedures.

xlv. Valuer: A valuer is a professional (which can be an individual or a legally established entity) who is given the responsibility to conduct or undertake valuation. Valuer can be defined to be a registered valuer under the provisions of Companies Act, 2013.

xlvi. Valuation base: Valuation base means the indication of the type of value being used in an assignment.

xlvii. Valuation date: Valuation date is the specific date at which the valuer estimates the value of the underlying asset and concludes on his estimation of value.

xlviii. With and Without Method (WWM): Under WWM, the value of the intangible asset to be valued is equal to the present value of the difference between the projected cash flows over the remaining useful life of the asset under the following two scenarios:

(a) business with all assets in place including the intangible asset to be valued; and

(b) business with all assets in place except the intangible asset to be valued.

xlix. Weight / Weightage: Weight / weightage refers to the importance given to a particular value determined using a particular valuation method / approach.

Effective Date

7. Indian Valuation Standard 101 Definitions, shall be applied for the valuation reports issued on or after……. , 20181.

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