Question

How do accounting issues impact the valuation of target companies? Discuss by demonstrating examples of accounting dilemmas?

Answer 1

Accounting Issues impact the valuation of target companies some of the examples are as follows:

1. Accounting for Depreciation - Straight line method, Written Down value method, accelerated depreciation method leads to difficulties in adjusting for depreciation entries in the books and valuation.

Similarly depreciation is added back to the since it a non cash item its added back to the net income for calculation of cash flow.

2. Interest charges are deducted from Profit and loss account but since they are tax savers so while calculating the value of an organisation the tax benefit amount is added back to determine the correct cashflow.