What are some examples of utility values
The use value determines the value of an asset for the fulfillment of a certain benefit. Every asset that is useful in a company has a use value. These assets can be divided into materials and sales goods. Materials are useful because they are needed in the production process. Goods show their use value in individual consumption.
This lesson is about use value. You get to know the relevance and the assessment criteria for the use value. Finally, you will be informed about the methods for determining the use value. To deepen your knowledge, you can answer a few exercise questions after the article.
Why is the use value important?
Every purchase must be worthwhile for a company. If the company buys a company building, a warehouse or a car, the asset must be valued.
If the asset has no use value for the company, it has not been invested sensibly. If investments are made more often, the acquisition of which has no use value for the company, the operation works uneconomically and runs towards a possible insolvency.
Which evaluation criteria are applied to the use value?
The utility value of an asset is measured by the benefit that the owner has from the asset.
In a service company (doctor, lawyer, insurance agent), on the other hand, a truck would have no practical value. The work can be done without a truck.
The economic importance of a use value
All goods that have the ability to meet needs have the following two uses:
- Goods have a use value.
- The goods have an exchange value.
Companies make investments in order to use the assets they buy. The goal they associate with it is higher sales and cost savings. From an economic point of view, the asset is used to increase the company's profit.
An asset that the entrepreneur no longer needs does not necessarily have to be disposed of. A flawless production machine that is replaced by a more modern system can still be of use to the entrepreneur. The entrepreneur can exchange the machine. In return, they receive a device that they can use better. If an exchange is not possible, the machine can be rented or leased.
Methods for determining the utility value
Use value for a company can be determined using the following methods:
The Market price method When determining the use value, it is based on the fact that the goods are created similarly and can be compared with one another in terms of quality and demand.
In a manufacturing company comes the Production cost method used to determine the value in use of the assets. In order to determine the utility value, it is relevant here what costs the machine causes in the manufacture of products.
The Alternative cost approach does not assume the actual benefit. Here the use value is examined on the basis of possible variants.
If the entrepreneur wants to determine the utility value of the property when renting it, he must know how great the demand is for a rental and how many years the building can still be rented.
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