Valuation

Brief Overview

When the business is transferred as part of merger/demerger or amalgamation or shares are bought and sold, it becomes very important for both buyer as well as seller to know what is the worth of that particular asset which is being transferred. The process which is undertaken to know the worth is nothing but “Valuation”. It is popularly said that “Price” is what you pay and “Value” is what you get. “Value” refers to the worth of an asset, whereas “Price” is the result of a negotiation process between a willing but not an overeager buyer and a willing but not an overeager seller.

In simple terms, valuation is a process of determining value of a company or an asset. Valuation is an art and not exact science. What the buyer thinks is whether the product is “worth the price” he has paid, this “worth” itself is the value of the product.

To become a valuer, please visit www.ibbi.gov.in or www.icairvo.in

Valuation is normally undertaken in following cases:

1. Companies Act, 2013

Specific Provisions under the Companies Act, 2013 which requires Valuation Report from a Registered Valuer. Any valuation report after 30^th April, 2019 should be from registered valuer only.

Section	Particulars
39(4)	Allotment of securities for consideration other than cash
54 [rule 8]	Issue of sweat equity shares
177(4)(iv)	For valuation of undertaking or assets of company
42	Private Placement of shares
62(1)(c)	Further issue of shares- Preferential issue of shares
67 [rule 16]	Provision of Money by Company for Purchase of its Own Shares by Employees or by Trustees for the Benefit of Employees
191 [rule 17]	Payment [other than in cash] to directors by way of compensation.
192(2)	Non Cash transaction involving directors
230(2)(c)(v)	Valuing under a Scheme of Corporate Debt Restructuring
230(11)	Offer of takeover of an unlisted co. as a result of Compromise or Arrangement
230(3)	Under scheme of Compromise or Arrangement with creditors and members [including swap ratio]
232(2)(d)	For reconstruction of com involving Merger, Amalgamation or Demerger
232(3)(h)	Valuation may be required by the Tribunal to provide exist for dissenting shareholders of transferor co.
236(2)	Purchase of minority shareholding [For Valuing Equity Shares held by Minority Shareholders]
281(1)	Valuing assets for submission of report by Company liquidator to NCLT
	Exclusions from deposits - Rule 2(c)(ix) of the Companies (Acceptance of Deposit) Rules, 2014
	Creation of security- Rule 6(1) of the Companies (Acceptance of Deposit) Rules, 2014
230(11) & (12)	Unlisted companies takeover rules [w.e.f 03rd February, 2020

Following transaction in companies act where no registered valuer required:

• Rights Issue
• Bonus issue
• Buyback of shares
• Employee stock option plan
• Conversion of debt to equity
• Fairness opinion on scheme of Merger or Amalgamation

2. Insolvency & Bankruptcy Code

Section/ Regulation	Requirement of Registered Valuer
CIRP 27	Two registered valuers are required to be appointed by Resolution Professional in 7 days to determine fair value and liquidation value
CIRP 35	If two liquidation values are significantly different [under CIRP 27], he may appoint another registered valuer who shall submit an estimate computed in the same manner; and the average of the two closest estimates shall be considered the liquidation value.
VLR 3(2)	In Voluntarily liquidation, valuation of assets of the corporate person by RV
VLR 38(1)	The liquidator prepare a sales statement explaining for shortfall in value assigned by register valuer
LPR 34(2)	Two registered valuers are required to be appointed by liquidator to value the assets
FTIRP 26	One registered valuer is required to be appointed by RP to determine fair value and liquidation value
Section 46(2) of IBC	The Adjudicating Authority may require an independent expert to assess evidence relating to the value of the transactions mentioned in this section.

Two registered valuers are required to be appointed by resolution professional to determine fair value and liquidation value [Refer Regulation 27 and 35 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016]

• One registered valuer is required to be appointed by resolution professional to determine fair value and liquidation value [Refer Regulation 26 and 34 of The Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017]
• Two registered valuers are required to be appointed by liquidator to value the assets [Refer Regulation 34(2) & 35 of The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016]
• In reference to voluntary liquidation, the registered valuer report [Section 59 (3)(b)(ii) of the Insolvency and Bankruptcy Code, 2016] – This report is required before initiation of process of Voluntary Liquidation.

In case of two registered valuers, both are supposed to submit their separate independent report.

Provided that the following persons shall not be appointed as registered valuers:

1. a relative of the interim resolution professional
2. a related party of the corporate debtor
3. an auditor of the corporate debtor in the five years preceding the insolvency commencement date or
4. a partner or director of the insolvency professional entity.

3. Indian Accounting Standards issued by the ICAI

Ind AS 36	Impairment of Assets	To ensure that the assets stated in the financial statements are not carried at an amount more than the recoverable amount.
Ind AS 103	Business Combinations	Recognition and measurement of assets, liabilities, goodwill and gain on purchase
Ind AS 109	Financial Instruments	All financial assets and liabilities are measured initially at fair value and after recognition
Ind AS 28	Investment in Associates and Joint Ventures	Upon the acquisition of the investment, Find out goodwill or Capital reserve and after recognition, investment tested for impairment
Ind AS 38	Intangible Assets	Determination of carrying amount, amortisation and impairment
Ind AS 102	Share-based Payment	Recognition & Financial reporting of transaction involving share based payment
Ind AS 16	Property, Plant and Equipment	to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period
Ind AS 40	Investment Property	the fair value of the investment property is to be disclosed, even if cost model is followed and the impairment is to be done
Ind AS 41	Agriculture	The fair value of biological assets and agricultural produce at the point of harvest to be measured

4. Valuation under the SEBI (REIT AND INVIT) Regulations, 2016
5. Determining the Portfolio Value of investments
6. Transfer Pricing Norms
7. Income Tax Act- Section 56 read with Rule 11UA.
8. Reserve Bank of India and Foreign Exchange Management Act (FEMA) in case of transfer of security between person resident outside India and president resident in India

Different Regulators in India have prescribed different valuation methodologies for different purposes. However till now due to lack of Indian Valuation Standards and absence of any Regulatory Authority to control, guide and develop the practice of valuation in India, different valuers have been taking different assumptions leading to drastic differences in value conclusion.

Now, the Ministry of Corporate Affairs (MCA) has now issued the Companies (Registered Valuers and Valuation) Rules, 2017 (Rules) on 18th October, 2017, and it has come into force w.e.f. 18th October, 2017.

The Companies (Registered Valuers and Valuation) Rules, 2017 prescribes use of internationally accepted Valuation Standard.

So, here is a synopsis of International Valuation Standard (IVS) issued by International Valuation Standard Council that can be considered for valuation of companies.

IVS 101 Scope of Work

A scope of work (sometimes referred to as terms of engagement) describes the fundamental terms of a valuation engagement, such as the asset(s) being valued, the purpose of the valuation and the responsibilities of parties involved in the valuation.

Wherever possible, the scope of work should be established and agreed between parties to a valuation assignment prior to the valuer beginning work.

A valuer must communicate the scope of work to its client prior to completion of the assignment, including the following:

1. Identity of the valuer: The valuer must disclose any material connection or involvement with the subject asset or the other parties to the valuation assignment, or if there are any other factors that could limit the valuer’s ability to provide an unbiased and objective valuation.
2. Identity of the client(s) (if any): The report must highlight for whom the valuation assignment is being produced.
3. Identity of other intended users (if any): It must state the intended users, their identity and their needs, to ensure that the report content and format meets those users’ needs.
4. Asset(s) being valued: The asset under valuation must be clearly identified.
5. The valuation currency.
6. Purpose of the valuation: The purpose for which the valuation is being undertaken must be clearly identified to ensure that the valuation advice is not used out of context or for purposes for which it is not intended.
7. Basis/bases of value used: The bases of valuation is based on the purpose of the valuation. The IVS 104 Bases of Value states that the valuation basis must be appropriate for the valuation.
8. Valuation date: The valuation date must be stated.
9. The nature and extent of the valuer’s work and any limitations thereon.
10. The nature and sources of information upon which the valuer relies.
11. Significant assumptions and/or special assumptions.
12. The type of report being prepared.
13. Restrictions on use, distribution and publication of the report.
14. That the valuation will be prepared in compliance with IVS and that the valuer will assess the appropriateness of all significant inputs.

IVS 102 Investigations and Compliance

Investigations made during the course of a valuation assignment must be appropriate for the purpose of the valuation assignment and the basis of value.

When a valuation assignment involves reliance on information supplied by a party other than the valuer, consideration should be given as to whether the information is credible or that the information may otherwise be relied upon without adversely affecting the credibility of the valuation opinion.

In considering the credibility and reliability of information provided, valuers should consider matters such as:

1. the purpose of the valuation,
2. the significance of the information to the valuation conclusion
3. the expertise of the source in relation to the subject matter, and
4. whether the source is independent of either the subject asset and/or the recipient of the valuation.

IVS 103 Reporting

This standard applies to all valuation reports or reports on the outcome of a valuation review which may range from comprehensive narrative reports to abbreviated summary reports

The report must set out a clear and accurate description of

1. the scope of the assignment,
2. its purpose and intended use (including any limitations on that use) and
3. the approach or approaches adopted,
4. the method or methods applied,
5. the key inputs used
6. disclosure of any assumptions,
7. special assumptions,
8. significant uncertainty or limiting conditions that directly affect the valuation
9. the conclusion(s) of value and principal reasons for any conclusions reached, and
10. the date of the report (which may differ from the valuation date)

IVS 104 Bases of Value

Bases of value (sometimes called standards of value) describe the fundamental premises on which the reported values will be based. It is critical that the basis (or bases) of value be appropriate to the terms and purpose of the valuation assignment, as a basis of value may influence or dictate a valuer’s selection of methods, inputs and assumptions, and the ultimate opinion of value.

A valuer may be required to use bases of value that are defined by statute, regulation, private contract or other document. Such bases have to be interpreted and applied accordingly

IVS defined Bases of Value		Other bases of value (non-exhaustive list)
•	Market Value	•	Fair Value (International Financial Reporting Standards)
•	Market Rent	•	Fair Market Value (Organisation for Economic Co-operation and Development)
•	Equitable Value	•	Fair Market Value (United States Internal Revenue Service)
•	Investment Value/ Worth	•	Fair Value (Legal/Statutory)
•	Synergistic Value
•	Liquidation Value

Definitions

Market Value – Market Value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Market Rent – Market Rent is the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Equitable Value – Equitable Value is the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.

Investment Value – Investment Value is the value of an asset to a particular owner or prospective owner for individual investment or operational objectives.

Synergistic Value – Synergistic Value is the result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values

Liquidation Value is the amount that would be realised when an asset or group of assets are sold on a piecemeal basis. Liquidation Value should take into account the costs of getting the assets into saleable condition as well as those of the disposal activity. Liquidation Value can be determined under two different premises of value:

1. an orderly transaction with a typical marketing period, or
2. a forced transaction with a shortened marketing period

IFRS 13 defines Fair Value as 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 measurement date.

The OECD defines Fair Market Value as the price a willing buyer would pay a willing seller in a transaction on the open market.

IVS 105 Valuation Approaches and Methods

The goal in selecting valuation approaches and methods for an asset is to find the most appropriate method under the particular circumstances. No one method is suitable in every possible situation. The selection process should consider, at a minimum:

1. the appropriate basis(es) of value and premise(s) of value, determined by the terms and purpose of the valuation assignment,
2. the respective strengths and weaknesses of the possible valuation approaches and methods,
3. the appropriateness of each method in view of the nature of the asset, and the approaches or methods used by participants in the relevant market, and
4. the availability of reliable information needed to apply the method(s).

Use of Methods

Valuers are not required to use more than one method for the valuation of an asset, particularly when the valuer has a high degree of confidence in the accuracy and reliability of a single method, given the facts and circumstances of the valuation engagement.

However, valuers should consider the use of multiple approaches and methods and more than one valuation approach or method should be considered and may be used to arrive at an indication of value, particularly when there are insufficient factual or observable inputs for a single method to produce a reliable conclusion.

Where more than one approach and method is used, or even multiple methods within a single approach, the conclusion of value based on those multiple approaches and/or methods should be reasonable and the process of analysing and reconciling the differing values into a single conclusion, without averaging, should be described by the valuer in the report.

When different approaches and/or methods result in widely divergent indications of value, a valuer should perform procedures to understand why the value indications differ, as it is generally not appropriate to simply weight two or more divergent indications of value.

Valuers should maximise the use of relevant observable market information in all three approaches.

Valuation Methodologies

There are 3 valuation methodologies

• Market Approach
• Income Approach
• Cost Approach

Market Approach	Income Approach	Cost Approach
Comparable Transactions Method	Discounted Cash Flow (DCF) Method	Replacement Cost Method
Guideline publicly-traded comparable method		Reproduction Cost Method
		Summation Method

Market Approach

The market approach provides an indication of value by comparing the asset with identical or comparable (that is similar) assets for which price information is available.

The market approach should be applied and afforded significant weight under the following circumstances:

1. the subject asset has recently been sold in a transaction appropriate for consideration under the basis of value,
2. the subject asset or substantially similar assets are actively publicly traded, and/or
3. there are frequent and/or recent observable transactions in substantially similar assets

When comparable market information does not relate to the exact or substantially the same asset, the valuer must perform a comparative analysis of qualitative and quantitative similarities and differences between the comparable assets and the subject asset. It will often be necessary to make adjustments based on this comparative analysis. Those adjustments must be reasonable and valuers must document the reasons for the adjustments and how they were quantified.

Market Approach Methods

Comparable Transactions Method

The comparable transactions method, also known as the guideline transactions method, utilises information on transactions involving assets that are the same or similar to the subject asset to arrive at an indication of value.

The key steps in the comparable transactions method are:

1. identify the units of comparison that are used by participants in the relevant market,
2. identify the relevant comparable transactions and calculate the key valuation metrics for those transactions,
3. perform a consistent comparative analysis of qualitative and quantitative similarities and differences between the comparable assets and the subject asset,
4. make necessary adjustments, if any, to the valuation metrics to reflect differences between the subject asset and the comparable assets,
5. apply the adjusted valuation metrics to the subject asset, and
6. if multiple valuation metrics were used, reconcile the indications of value.

Guideline publicly-traded comparable method

The guideline publicly-traded method utilises information on publicly-traded comparables that are the same or similar to the subject asset to arrive at an indication of value.

The key steps in the guideline publicly-traded comparable method are to:

1. identify the valuation metrics/comparable evidence that are used by participants in the relevant market,
2. identify the relevant guideline publicly-traded comparables and calculate the key valuation metrics for those transactions,
3. perform a consistent comparative analysis of qualitative and quantitative similarities and differences between the publicly-traded comparables and the subject asset,
4. make necessary adjustments, if any, to the valuation metrics to reflect differences between the subject asset and the publicly-traded comparables,
5. apply the adjusted valuation metrics to the subject asset, and
6. if multiple valuation metrics were used, weight the indications of value.

Normally, the earnings multiple is arrived for the selected companies. The earnings multiple are then analysed with Enterprise Value (EV) of the Company. Commonly used multiple are EV/EBITDA, EV/EBIT or P/E.

(Enterprise Value)		(Market Value of Equity + Market Value of Debt)
_______________	=	___________________________________________
EBITDA		EBITDA

In the market approach, the fundamental basis for making adjustments is to adjust for differences between the subject asset and the guideline transactions or publicly-traded securities

• Discounts for Lack of Marketability
• Discounts for Lack of Control

Income Approach

The income approach provides an indication of value by converting future cash flow to a single current value. Under the income approach, the value of an asset is determined by reference to the value of income, cash flow or cost savings generated by the asset.

The income approach should be applied and afforded significant weight under the following circumstances:

1. the income-producing ability of the asset is the critical element affecting value from a participant perspective, and/or
2. reasonable projections of the amount and timing of future income are available for the subject asset, but there are few, if any, relevant market comparables.

Discounted Cash Flow (DCF) Method

Under the DCF method the forecasted cash flow is discounted back to the valuation date, resulting in a present value of the asset.

In some circumstances for long-lived or indefinite-lived assets, DCF may include a terminal value which represents the value of the asset at the end of the explicit projection period. In other circumstances, the value of an asset may be calculated solely using a terminal value with no explicit projection period. This is sometimes referred to as an income capitalization method.

The key steps in the DCF method are:

1. choose the most appropriate type of cash flow for the nature of the subject asset and the assignment (i.e., pre-tax or post-tax, total cash flows or cash flows to equity, real or nominal, etc.),
2. determine the most appropriate explicit period, if any, over which the cash flow will be forecast. Valuers should consider the following factors when selecting the explicit forecast period:
   1. the life of the asset,
   2. a reasonable period for which reliable data is available on which to base the projections,
   3. the minimum explicit forecast period which should be sufficient for an asset to achieve a stabilized level of growth and profits, after which a terminal value can be used,
   4. in the valuation of cyclical assets, the explicit forecast period should generally include an entire cycle, when possible, and
   5. for finite-lived assets such as most financial instruments, the cash flows will typically be forecast over the full life of the asset
3. prepare cash flow forecasts for that period, typically the projected cash flow will reflect one of the following – contractual or promised cash flow, the single most likely set of cash flow, the probability-weighted expected cash flow, or multiple scenarios of possible future cash flow
4. determine whether a terminal value or exit value is appropriate for the subject asset at the end of the explicit forecast period (if any)

   Terminal Value

   Where the asset is expected to continue beyond the explicit forecast period, valuers must estimate the value of the asset at the end of that period. The terminal value is then discounted back to the valuation date, normally using the same discount rate as applied to the forecast cash flow.

   Exit Value

   The ultimate goal of market approach – exit value is to calculate the value of the asset at the end of the explicit cash flow forecast. However, the valuers should consider the expected market conditions at the end of the explicit forecast period and make adjustments accordingly.

5. determine the appropriate discount rate, and

   there are many methods for developing or determining the reasonableness of a discount rate, a non-exhaustive list of common methods includes:

   1. the capital asset pricing model (CAPM),
   2. the weighted average cost of capital (WACC),
   3. the observed or inferred rates/yields,
   4. the internal rate of return (IRR),
   5. the weighted average return on assets (WARA), and
   6. the build-up method (generally used only in the absence of market inputs).

   The Debt-Equity ratio is applied and a WACC can be calculated in a manner shown by the formula below:

   WACC =	(Cost of Equity x Equity Weight)		(After Tax Cost of Debt x Debt weight)
   	___________________________	+	________________________________
   	(Debt weight + Equity weight)		(Debt weight + Equity weight)

6. apply the discount rate to the forecasted future cash flow, including the terminal value, if any

Cost Approach

The cost approach provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction, unless undue time, inconvenience, risk or other factors are involved. The approach provides an indication of value by calculating the current replacement or reproduction cost of an asset and making deductions for physical deterioration and all other relevant forms of obsolescence

Broadly, there are three cost approach methods:

1. replacement cost method: a method that indicates value by calculating the cost of a similar asset offering equivalent utility,
2. reproduction cost method: a method under the cost that indicates value by calculating the cost to recreating a replica of an asset, and
3. summation method: a method that calculates the value of an asset by the addition of the separate values of its component parts

Replacement Cost Method

Replacement cost is the cost that is relevant to determining the price that a participant would pay as it is based on replicating the utility of the asset, not the exact physical properties of the asset.

The key steps in the replacement cost method are:

1. calculate all of the costs that would be incurred by a typical participant seeking to create or obtain an asset providing equivalent utility,
2. determine whether there is any depreciation related to physical, functional and external obsolescence associated with the subject asset, and
3. deduct total depreciation from the total costs to arrive at a value for the subject asset.

Reproduction Cost Method

Reproduction cost is appropriate in circumstances such as the following:

1. the cost of a modern equivalent asset is greater than the cost of recreating a replica of the subject asset, or
2. the utility offered by the subject asset could only be provided by a replica rather than a modern equivalent.

The key steps in the reproduction cost method are:

1. calculate all of the costs that would be incurred by a typical participant seeking to create an exact replica of the subject asset,
2. determine whether there is any depreciation related to physical, functional and external obsolescence associated with the subject asset, and
3. deduct total depreciation from the total costs to arrive at a value for the subject asset.

Summation Method

The summation method, also referred to as the underlying asset method, is typically used for investment companies or other types of assets or entities for which value is primarily a factor of the values of their holdings.

The key steps in the summation method are:

1. value each of the component assets that are part of the subject asset using the appropriate valuation approaches and methods, and
2. add the value of the component assets together to reach the value of the subject asset.

ICAI Valuation Standards

ICAI has issued Valuation Standards 2018 as a benchmark for Valuation Practices applicable for Chartered Accountants. The Preface to the ICAI Valuation Standards and Framework for the Preparation of Valuation Report must be referred to.

ICAI Valuation Standards	Synopsis of Standard
101-Definitions
102-Valuation Bases	Valuation base means the indication of the type of value being used in an engagement. Different valuation bases may lead to different conclusions of value. Therefore, it is important for the valuer to identify the bases of value pertinent to the engagement. This Standard defines the following valuation bases Most prevalent valuation bases are Fair value; Participant specific value; and Liquidation value
103-Valuation Approaches and methods	This Standard provides guidance for following three main valuation approaches: A valuer can make use of one or more of the processes or methods available for each approach. A valuer may consider adopting one distinct valuation approach/method or multiple valuation approaches/methods as may be appropriate to derive a reliable value. When evaluating a value resulting from use of multiple valuation approaches / methods, a valuer shall consider the reasonableness of the range of values. If the values under different approaches and/or methods significantly differ from each other, it would not be appropriate to derive the final value merely by weightages accorded to differing values.
201-Scope of Work, and Analyses and Evaluation	A valuer shall follow the requirement of this Standard while accepting an engagement of valuation. The valuer and the client should agree on the terms of engagement before commencement of the engagement. The agreed terms shall be recorded in the engagement letter including where necessary, an addendum, thereto. This Standard is applicable to all valuation assignments performed giving reference to any of the IVSs.
	A valuer shall gather and analyse the relevant general information which may affect the business directly or indirectly and/or which are deemed relevant by the valuer.
202-Reporting and Documentation	A valuer shall follow all requirements of this Standard in preparation of the valuation report. This Standard provides guidance on the documentation to be maintained for the preparation of a valuation report. Relevant valuation documentation that meets the requirements of this Standard provides evidence of the valuer’s basis for arriving at the value and that the valuation was planned and performed in accordance with the relevant IVSs. The contents of the valuation report specified in this Standard are not applicable to the extent a valuer is required to follow the requirements prescribed by any law, regulations, rules or directions of any Government or regulatory authority, or Court order. Sometimes, a valuer, as required by law or otherwise, may review a valuation undertaken by another valuer. Such review may be called by any other term such as opinion, valuation review engagement, etc. This valuation standard shall apply to the reports of such reviews undertaken.
301-Business Valuation	Valuations of businesses, business ownership interests may be performed for a wide variety of purposes including the following: valuation of financial transactions such as acquisitions, mergers, leveraged buyouts, initial public offerings, employee stock ownership plans and other share-based plans, partner and shareholder buy-ins or buy-outs, and stock redemptions; valuation for dispute resolution and/ or litigation/pending litigation relating to matters such as marital dissolution, bankruptcy, contractual disputes, owner disputes, dissenting shareholder and minority ownership oppression cases, employment disputes, etc; valuation for compliance oriented engagements, for example: financial reporting; and tax matters such as corporate reorganisations, purchase price allocations etc. valuation for other purposes like the valuation for planning, internal use by the owners etc; valuation under Insolvency and Bankruptcy Code. A valuer shall not apply this Standard, where any requirement of this Standard is inconsistent with the requirements prescribed under; or valuation procedures specified by any law, regulations, rules or directions of any government or regulatory authority, or Court order. In such cases, the valuer shall follow the requirements prescribed by any law, regulations, rules or directions of any government or regulatory authority, or Court order.
302- Intangible Assets	The importance of valuing intangible assets arises from the fact that the reported net worth of businesses may not be reflecting its true value, which most likely is in the form of intangible assets. Certain areas where intangible assets are required to be valued are as follows: purchase price allocation for accounting and financial reporting under Ind AS 103 Business Combination; impairment testing under Ind AS 36 Impairment of Assets; transfer pricing when an intangible asset is being transferred/licensed in/out between geographies/companies; taxation by way of a purchase price allocation for claiming tax deductions when a business is transferred by a slump sale; transaction (merger & acquisition) when the subject is the intangible itself, such as a brand/telecom license or for carrying out a pre-deal purchase price allocation to assess the impact of the deal on financials; financing, when an intangible is used as a collateral; litigation, when there has been a breach of contract/right and the compensation has to be determined; bankruptcy / restructuring, etc; insurance, such as determining the personal worth of a celebrity/football franchise/cricket franchise; or issuance of sweat equity shares which are generally issued against technical knowhow/ technical expertise/intellectual property.
	Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. In determining whether an asset that incorporates both intangible and tangible elements should be treated as a tangible asset, or as an intangible asset under this Standard, the valuer uses judgement to assess which element is more significant. For example, computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as tangible asset. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.
303-Financial Instruments	Valuation of financial instruments is commonly carried out amongst other matters, for transactional pricing (i.e. buy or sell) and financial reporting purposes. In addition, valuation of financial instruments is also of particular importance in case of business combinations, share based payments, off-market transactions, risk management, tax allocations, dispute resolution, purchase-price allocations, liquidation, etc. The principles contained in the other IVSs also apply to valuation of financial instruments. This Standard provides additional guidance for the valuation of financial instruments. Financial instruments being generally aligned to market linked factors, the usage of market linked methods with observable inputs is usually the preferred approach to arrive at a value. Valuation of certain financial instruments, for example, equity instruments, may in situations be based on the inherent business valuation from which the financial instrument derives value. A valuer should give due consideration to IVS 301 Business Valuation in relation to valuation of such financial instruments.

The Standards are applicable from 1st July, 2018. They are mandatory under Companies Act,2013 and recommendatory under other Statutes.