How to Separate Physical From Financial Effects
- 1). Separate physical and financial effects when valuing inventory. Count all physical inventory and value it according to the price you paid for it. Calculate the financial cost of replacing it. Calculate the current market value of the items. You may come up with varying numbers. The physical items have a purchase price associated with them that may be higher or lower than the financial costs of replacing or marketing them.
- 2). Measure the physical vs. financial effects of pooling resources with a joint partner. You may share physical resources, such as office and warehouse space. However, you may also share financial efficiencies in pricing, employee costs and marketing expenses. The physical effects come into play when evaluating the advantages of sharing space. The financial effects work to reduce costs of intangibles.
- 3). Estimate fair value of goods and services received by analyzing the physical and financial effects of these services. The actual value should be estimated, based on market conditions. This value assigns a dollar figure to the physical delivery of goods and services. However, in cases where fair value cannot be accurately estimated, calculate the increase in equity for your business as a result of the goods and services. You most often acquire goods and services to increase your company's value, so this financial valuation vs. physical valuation makes sense to those who track their company's net worth.
- 4). Utilize physical and financial effects for different purposes. Valuations of physical effects serve you in computing taxes. Financial effects may be more useful if you are computing your company's net worth in comparison to competitors or for purposes of selling your business.
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