What is the relationship between realization value and liquidation value

Realization value affects the assessment of liquidation value. When the realization value is high, the liquidation value is also high, but the realization value is generally higher than the liquidation value. Realization value is the exchange value of machinery and equipment can be realized under certain conditions. Theoretically, the investment cost of old equipment is the price a company pays to acquire it. The realizable value is the amount of cash that can be obtained by selling the old equipment in the market. The realizable value should be regarded as the gain foregone by continuing to use the old equipment, i.e., the opportunity cost of continuing to use the old equipment. Therefore, the realizable value of used equipment is a decision-related cost. Its impact on decision-making is: continue to use the old equipment for the enterprise to create the present value of income should not be less than the realizable value of the old equipment. It can be seen that the realizable value is not the investment cost of continuing to use the old equipment, but only to continue to use the old equipment to give up the income, give up the income is not the reality of the cost of expenditure. Liquidation value is a realizable value with a mandatory condition, and has the following three concepts.

1. Fast Liquidation Value

Fast liquidation value, also known as auction value, is a mandatory fast realization. All equipment is sold on a single-unit basis, at the time and place of sale; no unknown costs are taken into account, such as installation and commissioning costs, transportation costs, etc.; and the buyer is responsible for the dismantling of the purchased equipment and assumes the risk. Fast liquidation value usually does not include additional value such as: products that can be manufactured, existing installations, manufacturing licenses, trademarks, customer lists, sustainable operations, and other factors.

2. Orderly Liquidation Value

Orderly Liquidation is still a forced sale, and differs from Quick Liquidation Value in that the entire equipment must be sold within a specific time frame in the future, giving the liquidator time to advertise and bargain to find a suitable buyer and obtain a more reasonable sale price.

3. In-situ reuse liquidation value

In-situ reuse liquidation value refers to the fact that a business must be forced to sell its manufacturing equipment because of business failure. But the cause of business failure is due to management, not external factors such as economic form or market. Replacing the management with a new one can make the business profitable.