The asset value of shares, or. more correctly, the net asset value, is obtained by estimating the realizable value of the company’s assets, deducting known liabilities and dividing the result among the equity shares. This manner of valuing shares was used in calculating death duties due on the death of the virtual owner of a company. Where the shares were not quoted it was the only manner in which the value could be ascertained. However, even when a quotation was available, this technique was often used where the the authorities considered that a more realistic valuation would emerge from it.
The fact that death duties are now referred to as capital transfer tax in no way affects the eventual outcome. There is an even more drastic step that can be taken by the taxman to obtain an asset value for a majority shareholder’s shares. This is not as frequently used but involves calculating the proportion of the company’s income received by the shareholder, by dint of his shareholding and in whatever manner paid over by the company, and applying that percentage to the total net assets of the company.
Reference: The Penguin Business Dictionary, 3rd edt.
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