Share capital Equity Authr Issued Subscribed Caledup Facevalue Market Book

Share Capital is the fund raised by a company through the issuance of common or preferential shares to individuals / institutional investors for the growth and expansion related aspects of the company. It is also known as Equity Financing through which the shareholders of the issued capital receive rights of ownership in the concerned company by buying shares of the same. Buyers of the Share Capital become owners of the company in accordance to their stake in the same and hence possess certain degree of control over its operation. Amount of share capital a company possesses is a variable. As a company issues more and more shares to the public in lieu of fund, the amount of share capital increases. In the balance sheet of a company, issuing the share capital, it only reports the initial amount at which the share capitals were issued in the primary market. The company does not take into account any price appreciation or depreciation occurring due to the transactions in the secondary market into its balance sheet.

Share Capital may consist of :a)Common Share

It gives an ownership right to the holders of the stock and hence the share holders are entitled to the earnings of the company according to their stake. Holders also get dividends on those stocks as and when given by the company. Liquidity of common stocks are very high and can be bought and sold at any time of the market hours. b)Preferred Share

These stocks also give ownership right to its holders. Its holders enjoy the privilege of receiving dividends from the company in preference to any other common share holders. Preferred stocks have less liquidity than the common stocks.

Share Capital issuance are most likely to benefit the small businesses who suffer from lack of initial cash flow. Through this, small businesses get easy access to fund. Share Capital are also advantageous to a small business owner because he has no obligation for repayment of money to the investor. The main disadvantage of financing through share capital route is that the owner(s) has to give-up certain amount of control from the business because buyers of the Share Capital become part owners of the company in accordance to their stake in the same and hence possess certain degree of control over its operation. Thus, the owner is now not free to take any decision as per his ideas but has the obligation of getting it approved from the board of shareholders.

equity capital
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Definition
Invested money that, in contrast to debt capital, is not repaid to the investors in the normal course of business. It represents the risk capital staked by the owners through purchase of the firm's common stock (ordinary shares). Its value is computed by estimating the current market value of everything owned by the firm from which the total of all liabilities is subtracted. On the balance sheet of the firm, equity capital is listed as stockholders' equity or owners' equity. Also called equity financing or share capital.
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Ownership equity
From Wikipedia, the free encyclopedia

Jump to: navigation, search This article is in need of attention from an expert on the subject. WikiProject Business and Economics or the Business and Economics Portal may be able to help recruit one. (November 2008)

Accountancy Key concepts Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS Financial statements Balance sheet Income statement Cash flow statement Ownership equity

Retained earnings Auditing Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors Fields of accounting Cost Financial Forensic Fund Management Tax
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In accounting terms, after all liabilities are paid, ownership equity is the remaining interest in assets. If valuations placed on assets do not exceed liabilities, negative equity exists. Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital employed) is this interest in remaining assets, spread among individual shareholders of common or preferred stock. At the start of a business, owners put some funding into the business to finance assets. Businesses can be considered to be, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for, the positive remainder is deemed the owner's interest in the business. This definition is helpful put into receivership or bankruptcy. Then, a series of creditors, ranked in priority sequence, have the first claim on the proceeds (e.g. asset sales), and ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such a case, creditors may not get enough money to pay their bills, and nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital, liable capital and equity.

Contents
[hide]

1 Accounting o 1.1 Book value 2 Shareholders' equity 3 Market value of shares 4 Real estate equity 5 References 6 See also 7 External links

[edit] Accounting
In financial accounting, it is the owners' interest on the assets of the enterprise after deducting all its liabilities.[1] It appears on the balance sheet, one of four financial statements. Ownership equity includes both tangible and intangible items (such as brand names and reputation). In contrast, book value includes only the tangible assets. Accounts listed under ownership equity include (example):

Preferred stock Share capital, common stock Capital surplus Stock options Retained earnings Treasury stock Reserve (accounting)

[edit] Book value

The book value of equity will change in the case of the following events:

Changes in the firm's assets relative to its liabilities. For example, a profitable firm receives more cash for its products than the cost at which it produced these goods, and so in the act of making a profit it is increasing its assets. Depreciation. Equity will decrease, for example, when machinery depreciates, which is registered as a decline in the value of the asset, and on the liabilities side of the firm's balance sheet as a decrease in shareholders' equity. Issue of new equity in which the firm obtains new capital increases the total shareholders' equity.

Share repurchases, in which a firm gives back money to its investors, reducing on the asset side its financial assets, and on the liability side the shareholders' equity. For practical purposes (except for its tax consequences), share repurchasing is similar to a dividend payment, as both consist of the firm giving money back to investors. Rather than giving money to all shareholders immediately in the form of a dividend payment, a share repurchase reduces the number of shares (increases the size of each share) in future income and distributions. Dividends paid out to preferred stock owners are considered an expense to be subtracted from net income[citation needed](from the point of view of the common share owners). Other reasons. Assets and liabilities can change without any effect being measured in the Income Statement under certain circumstances; for example, changes in accounting rules may be applied retroactively. Sometimes assets bought and held in other countries get translated back into the reporting currency at different exchange rates, resulting in a changed value.

[edit] Shareholders' equity

When the owners are shareholders, the interest can be called shareholders' equity;[2] the accounting remains the same, and it is ownership equity spread out among shareholders. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives. However, shareholders may allow different priority ranking among themselves by the use of share classes, and options. This complicates both analysis for stock valuation, and accounting. The individual investor is interested not only in the total changes to equity, but also in the increase / decrease in the value of his own personal share of the equity. This reconciliation of equity should be done both in total and on a per share basis.

Equity (beg. of year) + net income inter net money you gained dividends how much money you gained or lost so far +/ gain/loss from changes to the number of shares outstanding.more or less = Equity (end of year) if you get more money during the year or less or not anything

[edit] Market value of shares

In the stock market, market price per share does not correspond to the equity per share calculated in the accounting statements. Stock valuations, often much higher, are based on other considerations related to the business' operating cashflow, profits and future prospects; some factors are derived from the accounting statements. Thus, there is little or no correlation between the equity seen in financial statements and the stock valuation of the business.

[edit] Real estate equity

Individuals can also use market valuations to calculate equity in real estate. An owner refers to his or her equity in a property as the difference between the market price of a property and the liability attached to the property (mortgage or home equity loan).

[edit] References
1. ^ IFRS Framework quotation: International Accounting Standards Board F.49(c) 2. ^ shareholders' equity Definition

[edit] See also

Statement of Owner's Equity

[edit] External links

Ownership equity definition and explanations given in simple terms

Retrieved from "http://en.wikipedia.org/wiki/Ownership_equity" Categories: Finance | Generally Accepted Accounting Principles Hidden categories: Business and Economics articles needing expert attention | Articles needing expert attention from November 2008 | All articles with unsourced statements | Articles with unsourced statements from April 2007

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Authorised capital
From Wikipedia, the free encyclopedia

Jump to: navigation, search The authorised capital of a company (sometimes referred to as the authorised share capital or the nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its constitutional documents to issue to shareholders. Part of the authorised capital can (and frequently does) remain unissued. The part of the authorised capital which has been issued to shareholders is referred to as the issued share capital of the company.

Audit Interview Questions CompanyAffairs CS Interview Questions Taxation Interview Questions Accounting AllOther Interview Questions

Question capital

what is authorised capitla and subscribed

Question Submitted By :: Guest I also faced this Question!! Rank

Answer Posted By

Re: what is authorised capitla and subscribed capital Answer how much amount 1 S.krishna Manohar # 1 shown in articles of
association is called authorised capital and how much issued from authorised capital in issued capital where how much subscribed from issued capital is called subscribed capital.

Is This Answer 19 Yes 10 No Correct ?

Re: what is authorised capitla and subscribed capital Answer which a company is 0 Sivakumar authorised to issue #2

by its memorandumis called a authorized capital. it is that part of issued capital which has been subscribed capital

Is This Answer 11 Yes 8 No Correct ?

Re: what is authorised capitla and subscribed capital Answer At the time of 0 Vijay Gawalkar of # 3 Incorporation Company, in Article
of association the maximum limit of Capital to be raised from shareholder are mention called Authorised Share Capital. Note, company cannot raised capital amount more than Authorised Captial unless the Article of Association is ammended by passing special resolution by the share holders with approval of central Government and ROC. Subscribed share Capital is nothing but the share Capital issued to the shareholder and subscribed by share

holder.

Is This Answer 23 Yes 0 No Correct ?

Re: what is authorised capitla and subscribed capital Answer Authorised capital 0 Krishnachaitanyanellore that capital # 4 is which is decided by
the Registrar (recruited under companies act,1956)as the maximum amount that can be raised from the shareholders. Say Rs20 crores. Issued capital is that part of the authorised capital which is brought before the public for subscription. Say Rs 18 crores. Subscribed capital is that part of the issued capital that is actually subscribed by the public. Say 16 crores. Paid-up capital is that part of the subscribed capital that is collected by the company as a part payment. Say 8 crores. The due part will be collected by the company is the immediate future.

Is This Answer 17 Yes 2 No Correct ?

Re: what is authorised capitla and subscribed capital Answer The authorized 0 Aarti Sharma # 5 capital is the
capital limit authorized by the Registrar of Companies up to which the shares can be issued to the members / public, as the case may be. The issued capital is a part of authorized capital issued to shares holders. The Subscribed capital is a part of issud capital accepted by Sharesholdrs. The paid up share capital is the paid portion of the capital subscribed by the shareholders.

Is This Answer 9 Yes Correct ?

0 No

Re: what is authorised capitla and subscribed capital Answer 0 Swadhin #6

how much amount shown in articles of association is called authorised capital and how much issued from authorised capital in issued

capital where how much subscribed from issued capital is called subscribed capital.

Is This Answer 1 Yes Correct ?

2 No

Re: what is authorised capitla and subscribed capital Answer 0 Anil #7

Authorised capital maximum amount of limite which is mentioned in capital clues of memorandam of assouciation of the compnay subcribed capital paid up value of issued capital

Is This Answer 2 Yes Correct ?

0 No

Re: what is authorised capitla and subscribed capital Answer 0 Gowtham #8

I don't know, my question may be foolish. Recently Central government/ROC/CLB has increased Satyam computers Authorized share capital amount from 120 cr to 280 cr. What is the significance of this act? How it impacts existing shareholders? What will happen to the extra 120 cr increased capital?

Thanks, Gowtham

Is This Answer 3 Yes Correct ?

0 No

Re: what is authorised capitla and subscribed capital Answer 0 Haraprasad Rout #9
Authorised capital or nominal capital is the maximum amount of capital which a company can raise from varoius persons by way of issue of shares i.e.Out sidres, Directors and their relatives or any other party and is mentioned in the Object clause of the memorandum of association of the company.In other words, the authorised capital is the maximum amount of capital with which the company has been registered with the Registrar of companies after payment of appropriate fees, beyond which the company can not issue the shares to any body. Subscribed capital is that portion of the Authorised or nominal capital which has been issued by the company and has been subscribed

by various persons.

Is This Answer 2 Yes Correct ?

0 No

Re: what is authorised capitla and subscribed capital Answer The authorised 0 Nishikanta Sahoo is the # 10 capital maximum amount of
capital with which the company has been Registered with the Registrar of companies after payment of appropriate fees,beyond which the company can not issue the shares to anybody.

Is This Answer 0 Yes Correct ?

0 No

issued capital
The nominal value of those shares in a company that have been allotted. The issued capital is equivalent to the amount invested, provided the issue has not been at a premium price.

issued share capital

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Definition
Par value of that part of the authorized share capital which has been issued (sold) as shares whether their purchasers (shareholders) have paid for them or not. A firm can, at any time, issue new shares up to the full amount of authorized share capital. Also called subscribed capital, or subscribed share capital.

called up share capital

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Definition
Value of the issued shares which have remained fully or partially unpaid, and whose holders have now been called upon to pay the balance.

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Sources of Finance
Authorised, Issued and Called Up Share Capital
The memorandum of association of a limited company states the amount of authorised or nominal share capital. It also says how the share capital is divided into individual shares of a set amount, such as 10p a share. There are no upper or lower limits on authorised share capital for private limited companies, but a public limited company (plc) must have an authorised share capital of at least 50,000. A company can increase its authorised share capital by passing an ordinary resolution at a general meeting. Equally, a company can decrease its authorised share capital by passing an ordinary resolution to cancel some shares - this is called 'diminution of capital'. Issued share capital comprises that part of the authorised share capital that has actually been issued, released or sold by the company. Tesco plc has authorised share capital of 9.2 billion shares at a total nominal value of 460 million but its issued share capital comprises just over 6.9 billion shares with nominal value of 347 million (see table below). The difference between the authorised and issued share capital represents the number and value of shares that the company can issue should it need to raise further capital. Tesco, therefore, could issue around 2.3 billion shares to take its issued share capital up to its current maximum authorised share capital of 9.2 billion shares. The issued share capital cannot exceed the authorised share capital although companies can increase their authorised share capital if they need to, as we have already seen.

Of the minimum 50,000 authorised share capital that a public limited company must have, at least a quarter of the nominal value of each share and any premium must be paid before it can start trading or borrowing money. Share capital is called up once it has been issued and the company is asking for payment. The following table for Tesco plc helps to illustrate the process for a public limited company:
Called up share capital

Ordinary shares of 5p each Number

Authorised

m 460

9,200,000,000

Allotted, issued and fully paid: Issued at 24 February 2001 Scrip dividend election Share options Issued at 23 February 2002 6,932,225,203 22,148,324 39,906,181 6,994,279,711 347 1 2 350

Book value
From Wikipedia, the free encyclopedia

Jump to: navigation, search

Accountancy Key concepts Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS Financial statements Balance sheet Income statement Cash flow statement Ownership equity Retained earnings

Auditing Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors Fields of accounting Cost Financial Forensic Fund Management Tax
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In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or impairment costs made against the asset. Traditionally, a company's book value is its total assets minus intangible assets and liabilities.[1][2] However, in practice, depending on the source of the calculation, book value may variably include goodwill, intangible assets, or both.[3] When intangible assets and goodwill are explicitly excluded, the metric is often specified to be "tangible book value".[citation needed] In the United Kingdom, the term net asset value may refer to the book value of a company.[4]

Contents
[hide]

1 Asset book value o 1.1 Depreciable, amortizable and depletable assets 2 Net asset value 3 Corporate book value 4 Tangible Common Equity 5 Stock pricing book value o 5.1 Uses o 5.2 Changes are caused by o 5.3 New share issues and dilution o 5.4 Net book value of long term assets 6 References 7 External links 8 See also

[edit] Asset book value

An asset's initial book value is its actual cash value or its acquisition cost. Cash assets are recorded or "booked" at actual cash value. Assets such as buildings, land and equipment are valued based on their acquisition cost, which includes the actual cash cost of the asset plus certain costs tied to the purchase of the asset, such as broker fees. Not all purchased items are recorded as assets; incidental supplies are recorded as expenses. Some assets might be recorded as current expenses for tax purposes. An example of this is assets purchased and expensed under Section 179 of the US tax code.[citation needed]

[edit] Depreciable, amortizable and depletable assets

Monthly or annual depreciation, amortization and depletion are used to reduce the book value of assets over time as they are "consumed" or used up in the process of obtaining revenue.[5] These non-cash expenses are recorded in the accounting books after a trial balance is calculated to ensure that cash transactions have been recorded accurately. Depreciation is used to record the declining value of buildings and equipment over time. Land is not depreciated. Amortization is used to record the declining value of intangible assets such as patents. Depletion is used to record the consumption of natural resources.[6] Depreciation, amortization and depletion are recorded as expenses against a contra account. Contra accounts are used in bookkeeping to record asset and liability valuation changes. "Accumulated depreciation" is a contra-asset account used to record asset depreciation.[7] Sample general journal entry for depreciation[8]

Depreciation expenses: building... debit = $150, under expenses in retained earnings Accumulated depreciation: building... credit = $150, under assets

The balance sheet valuation for an asset is the asset's cost basis minus accumulated depreciation.[9] Similar bookkeeping transactions are used to record amortization and depletion. "Discount on notes payable" is a contra-liability account which decreases the balance sheet valuation of the liability.[10] When a company sells (issues) bonds, this debt is a long-term liability on the company's balance sheet, recorded in the account Bonds Payable based on the contract amount. After the bonds are sold, the book value of Bonds Payable is increased or decreased to reflect the actual amount received in payment for the bonds. If the bonds sell for less than face value, the contra account Discount on Bonds Payable is debited for the difference between the amount of cash received and the face value of the bonds.[11]

[edit] Net asset value

In the United Kingdom, the term net asset value may refer to book value.[12] A mutual fund is an entity which primarily owns "financial assets" or capital assets such as bonds, stocks and commercial paper. The net asset value of a mutual fund is the market value of assets owned by the fund minus the fund's liabilities.[13] This is similar to shareholders' equity, except the asset valuation is market-based rather than based on acquisition cost. In financial news reporting, the reported net asset value of a mutual fund is the net asset value of a single share in the fund. In the mutual fund's accounting records, the financial assets are recorded at acquisition cost. When assets are sold, the fund records a capital gain or capital loss.[citation needed] Financial assets include stock shares and bonds owned by an individual or company.[14] These may be reported on the individual or company balance sheet at cost or at market value.

[edit] Corporate book value

A company or corporation's book value, as an asset held by a separate economic entity, is the company or corporation's shareholders' equity, the acquisition cost of the shares, or the market value of the shares owned by the separate economic entity. A corporation's book value is used in fundamental financial analysis to help determine whether the market value of corporate shares is above or below the book value of corporate shares. Neither market value nor book value is an unbiased estimate of a corporation's value. The corporation's bookkeeping or accounting records do not

generally reflect the market value of assets and liabilities, and the market or trade value of the corporation's stock is subject to variations.

[edit] Tangible Common Equity

A more obscure variation of book value, tangible common equity, has recently come into use by the U.S. Federal Government in the valuation of troubled banks.[15][16] Tangible common equity is calculated as total book value minus intangible assets, goodwill, and preferred equity, and can thus be considered the most conservative valuation of a company and the best approximation of its value should it be forced to liquidate.[17] Since tangible common equity subtracts preferred equity from the tangible book value, it does a better job estimating what the value of the company is to holders of specifically common stock compared to standard calculations of book value.

[edit] Stock pricing book value

To clearly distinguish the market price of shares from the core ownership equity or shareholders' equity, the term 'book value' is often used since it focuses on the values that have been added and subtracted in the accounting books of a business (assets - liabilities). The term is also used to distinguish between the market price of any asset and its accounting value which depends more on historical cost and depreciation. It may be used interchangeably with carrying value. While it can be used to refer to the business' total equity, it is most often used:

as a 'per share value': The balance sheet Equity value is divided by the number of shares outstanding at the date of the balance sheet (not the average o/s in the period). as a 'diluted per share value': The Equity is bumped up by the exercise price of the options, warrants or preferred shares. Then it is divided by the number of shares that has been increased by those added.

[edit] Uses
1. Book value is used in the financial ratio price/book. It is a valuation metric that sets the floor for stock prices under a worst-case scenario. When a business is liquidated, the book value is what may be left over for the owners after all the debts are paid. Paying only a price/book = 1 means the investor will get all his investment back, assuming assets can be resold at their book value. Shares of capital intensive industries trade at lower price/book ratios because they generate lower earnings per dollar of assets. Business depending on human capital will generate higher earnings per dollar of assets, so will trade at higher price/book ratios. 2. Book value per share can be used to generate a measure of comprehensive earnings, when the opening and closing values are reconciled. BookValuePerShare, beginning of year - Dividends + ShareIssuePremium + Comprehensive EPS = BookValuePerShare, end of year.[18]

[edit] Changes are caused by

1. The sale of shares/units by the business increases the total book value. Book/sh will increase if the additional shares are issued at a price higher than the preexisting book/sh. 2. The purchase of its own shares by the business will decrease total book value. Book/sh will decrease if more is paid for them than was received when originally issued (pre-existing book/sh). 3. Dividends paid out will decrease book value and book/sh. 4. Comprehensive earnings/losses will increase/decrease book value and book/sh. Comprehensive earnings, in this case, includes net income from the Income Statement, foreign exchange translation changes to Balance Sheet items, accounting changes applied retroactively, and the opportunity cost of options exercised.

[edit] New share issues and dilution

The issue of more shares does not necessarily decrease the value of the current owner. While it is correct that when the number of shares is doubled the EPS will be cut in half, it is too simple to be the full story. It all depends on how much was paid for the new shares and what return the new capital earns once invested. See the discussion at stock dilution.

[edit] Net book value of long term assets

Book value is often used interchangeably with "net book value" or "carrying value," which is the original acquisition cost less accumulated depreciation, depletion or amortization.

Face value
From Wikipedia, the free encyclopedia

Jump to: navigation, search For other uses, see Face value (disambiguation).

A Romanian stamp from 1947 showing a face value of 12 Lei. The Face value is the value of a coin, stamp or paper money, as printed on the coin, stamp or bill itself by the minting authority. While the face value usually refers to the true value of the coin, stamp or bill in question (as with circulation coins) it can sometimes be largely symbolic, as is often the case with bullion coins. For example, a one troy ounce (31 g) American Gold Eagle bullion coin was worth and sold for about $670 USD during 2006 market prices (as of July 17, 2006) and yet has a face value of only $50 USD.

[edit] Overview
The face value of bonds usually represents the principal or redemption value. Interest payments are expressed as a percentage of face value. Before maturity, the actual value of a bond may be greater or less than face value, depending on the interest rate payable and the perceived risk of default. As bonds approach maturity, actual value approaches face value. In the case of stock certificates, face value is the par value of the stock. In the case of common stock, par value is largely symbolic. In the case of preferred stock, dividends may be expressed as a percentage of par value. The face value of a life insurance policy is the death benefit. In the case of so-called "double indemnity" life insurance policies, the beneficiary receives double the face value in case of accidental death. The face value of property, casualty or health insurance policies is the maximum amount payable, as stated on the policy's face or declarations page. Face value can be used to refer to the apparent value of something other than a financial instrument, such as a concept or plan. In this context, "face value" refers to the apparent merits of the idea, before the concept or plan has been tested. Face value also refers to the price printed on a ticket to a sporting event, concert, or other event (the price the ticket was originally sold for by the organization hosting the event). In many jurisdictions, re-selling tickets for more than face value (or a certain amount above face value) constitutes ticket scalping and is illegal.

Market value
From Wikipedia, the free encyclopedia

Jump to: navigation, search Market value is the price at which an asset would trade in a competitive Walrasian auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some circumstances.

Contents
[hide]

1 Definition o 1.1 Relativity of Market Theories o 1.2 Overpricing and Underpricing 2 Real estate 3 Other definitions o 3.1 Liquidation value o 3.2 Orderly liquidation value o 3.3 Federal land acquisition o 3.4 Going concern value o 3.5 Use value o 3.6 Legal Interpretation 4 References

[edit] Definition
International Valuation Standards defines market value as "the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion."[1] Market value is a concept distinct from market price, which is the price at which one can transact, while market value is the true underlying value according to theoretical standards. The concept is most commonly invoked in inefficient markets or disequilibrium situations where prevailing market prices are not reflective of true underlying market value. For market price to equal market value, the market must be informationally efficient and rational expectations must prevail. Market value is also distinct from fair value in that fair value depends on the parties involved, while market value does not. For example, IVS currently notes fair value "requires the assessment of the price that is fair between two specific parties taking into account the respective advantages or disadvantages that each will gain from the transaction. Although market value may meet these criteria, this is not necessarily always the case. Fair value is frequently used when undertaking due diligence in corporate transactions, where particular synergies between the two parties may mean that the price that is fair between them is higher than the price that might be obtainable in the wider market. In other words "special value" may be generated. market value requires this element of "special value" to be disregarded, but it forms part of the assessment of fair value.[2]

[edit] Relativity of Market Theories

Readers should realize that Market Value is not exact science, but an introduced concept from individuals and companies as a business tool. Value is subject to seller and buyer's perception and interpretation of parameters that they decide to take into consideration,

while other people usually refer to their very own perceptions and interpretations of what those people think is important. Any whatever article should be explained in this context, because people pay what they want in spite of whatever advice. Local, regional, national, international? Considering that Market Price is what people agree to pay for something at a given moment at a given place, it is important to underline the importance of the time and place range wherein sellers and buyers meet. The Local and Instant Market Value of a specific item is exactly the same as the Local Market Price. And if several people want the same thing while there is not enough for everybody that wants it, Market Value and Market Price are identical. It is wrong to state that things have any stand-alone value, because value depends upon transactions. No transaction means zero value, whatever value estimation or selling price expectation. When a lot of popular items in a place is almost sold out, sometimes people are willing to pay more than the asking price rather than spend time and effort to get it cheaper elsewhere. Is the paid price then Market Value or Market Price? Both.

[edit] Overpricing and Underpricing

These two words are used to say that a price is too high or too low in regard to the expectations of an individual or a group. It is a matter or comparison to personal expectations or/and some comparison tool as a chart, table, formula that is agreed upon and set forth as a common viewpoint by those people. Overpricing and Underpricing statements are valid if related to the used comparison origin but irrational without such a basis. More often than not, these statements are purely emotional without any valid reference.

[edit] Real estate

The term is commonly used in real estate appraisal, since real estate markets are generally considered both informationally and transactionally inefficient. Also, real estate markets are subject to prolonged periods of disequilibrium, such as in contamination situations or other market disruptions. Appraisals are usually performed under some set of assumptions about transactional markets, and those assumptions are captured in the definition of value used for the appraisal. Commonly, the definition set forth for U.S. federally regulated lending institutions is used, although other definitions may also be used under some circumstances:[3] "The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best

interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale." USA, Licensed or Certified Apppraisers may be required under state, federal, or local laws to develop appraisals subject to USPAP Uniform Standards of Professional Appraisal Practice. The Uniform Standards of Professional Appraisal Practice requires that when market value is the applicable definition, the appraisal must also contain an analysis of the highest and best use as well as an estimation of exposure time. Many states do not require mandatory licensure of appraisers. It is important to note that USPAP does not require that all real estate appraisals be performed at market value. Indeed, there are frequent situations when appraisers are called upon to appraise other values. If a value other than market value is appropriate, USPAP only requires that the appraiser provide both the definition of value being used and the citation for that definition.

[edit] Other definitions

Market value is the most commonly used definition of value in real estate appraisal in the United States because it is required for all federally regulated mortgage transactions and because the International Association of Assessing Officers (IAAO) has accepted it for use in property taxation. However, real estate appraisers use many other definitions of value in other situations[4].

[edit] Liquidation value

Liquidation value is the most probable price that a specified interest in real property is likely to bring under all of the following conditions: 1. Consummation of a sale will occur within a severely limited future marketing period specified by the client. 2. The actual market conditions currently prevailing are those to which the appraise property interest is subject. 3. The buyer is acting prudently and knowledgeably. 4. The seller is under extreme compulsion to sell. 5. The buyer is typically motivated. 6. The buyer is acting in what he or she considered his or her best interest. 7. A limited marketing effort and time will be allowed for the completion of the sale. 8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. 9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

[edit] Orderly liquidation value

This value definition differs from the previous one in that it assumes an orderly transition, and not 'xtreme compulsion.[5]

[edit] Federal land acquisition

For land acquisitions by or funded by U.S. federal agencies, a slightly different definition applies:[6] "Fair market value is defined as the amount in cash or terms reasonably equivilent to cash, for which in all probability the property would be sold by a knowledgeable owner willing but not obligated to sell to a knowledgeable purchaser who desired but is not obligated to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and reasonably be given substantial weight in bargaining by persons of ordinary prudence, but no consideration whatever should be given to matters not affecting market value."

[edit] Going concern value

When an appraiser values the combination of a business and the real estate used for that business, the specific market value is called "going concern value". It recognizes that the combined market value may be different from the sum of the separate values: "The market value of all the tangible and intangible assets of an established operating business with an indefinite life, as if sold in aggregate."[7]

[edit] Use value

Use value takes into account a specific use for the subject property and does not attempt to ascertain the highest and best use of the real estate. For example, the appraisal may focus on the contributory value of the real estate to a business enterprise. Some property tax jurisdictions allow agricultural use appraisals for farmland. Also, current IRS estate tax regulations allow land under an interim agricultural use to be valued according to its current use regardless of development potential. [8]

[edit] Legal Interpretation

The case of Luxmoore-May and Another v. Messenger May Baverstock [1990] 1 W.L.R. 1009 shows us the legal interpretation of market value: "The measure of damage in this case is, I conclude, the difference between what the foxhounds in fact realised consequent on the defendants' breach of contract and what was their true open market value at that time. What better guide could there be to that value than the price at which these paintings happened to be knocked down at Sotheby's so shortly afterwards? The price

which the international art market was willing to pay was surely prima facie the best evidence of the foxhounds' value."