This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
End of attention
Adjustments to the stand alone value
Businesses are often bought and sold at a price that is higher than their stand alone value prior to an acquisition.
To the extent that it exists, the amount of the transacted value in excess of the stand alone value is often described as the 'acquisition premium'.
The concept of market value implies the construction of a hypothetical transaction between willing, knowledgeable, but not anxious buyers and sellers. Therefore, when assessing the market value of petroleum projects, it is likely that valuers will consider whether it is appropriate to make an adjustment to the stand alone value of the project to reflect any observed 'acquisition premium', or other adjustments. Such adjustments can either be implicit or explicit in the valuation method chosen. However, care should be taken not to treat as acquisition premium something that is properly part of stand alone value, such as where assumed forward values for commodity prices are reflected in the stand alone value.
Some exploration valuation methods do not (or are unable to) reflect a series of parameters that are able to be evidenced in the market as at 1 May 2010. Therefore, some valuers (particularly when valuing early stage exploration and development projects) assess the stand alone value of a project with reference to parameters that may be above or below those evidenced in the financial markets as at the valuation date. Consequently, when applying these exploration valuation methods, it may be appropriate to reflect a series of high level adjustments to the stand alone value to account for differences in market conditions relative to those embedded within the method itself.
However, other valuation methods (particularly the DCF valuation method) are able to explicitly reflect a series of parameters that are able to be evidenced in the financial markets as at 1 May 2010. This is particularly the case if valuers adopt commodity price, exchange rate, inflation rate, and discount rate parameters which are directly evidenced in the financial markets as at 1 May 2010, and resource to reserve conversion, cost structure and capital expenditure parameters which are consistent with the expectations in the market as at 1 May 2010. Doing so will limit the need to make further adjustments to the resulting stand alone value to account for such factors as 'market considerations'.
To the extent that valuers choose to apply further adjustments to their assessed stand alone value, the ATO considers it to be good practice for valuers to clearly identify how they have applied the adjustment, and for valuers to clearly articulate their rationale for doing so.