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assess the period of time operations will continue until disposal
and the expected results of operations over that time period.
U.S. GAAP also requires management to evaluate the expected
outcome from the disposal of the business unit. In order to do
so, management is required to adjust the value of the unit’s
assets from book value to net realizable value.13
After conducting a review of G�nther’s assets and obtaining
appraisals where necessary, petitioner’s management concluded:
(1) The values of most of G�nther’s book assets must be adjusted
downward to reflect that their net realizable values were lower
than their book values; (2) the value of G�nther's ownership
interest in Actium must be adjusted upward to reflect its net
realizable value in excess of book value; and (3) G�nther’s
liabilities substantially exceeded the fair market value of
G�nther’s assets as of May 31, 1992.
On its consolidated statement of operations and retained
earnings for FYE May 31, 1992, petitioner reported a loss from
13For Federal estate, gift, and income tax purposes, fair
market value means “the price at which the property would change
hands between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having reasonable
knowledge of relevant facts.” United States v. Cartwright, 411
U.S. 546, 551 (1973); Martin Ice Cream Co. v. Commissioner, 110
T.C. 189, 220 (1998). Although net realizable value is an
accounting concept which apparently refers to the net value
realizable from the sale or disposition of a business unit and/or
its assets and is not necessarily the same as fair market value,
we are satisfied that petitioner’s management calculated the fair
market value of G�nther’s assets and that those values were
considered in determining the net realizable value of G�nther’s
assets for financial statement purposes.
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