Opinion ID: 1167551
Heading Depth: 4
Heading Rank: 2

Heading: Valuation of the Law Firm's Tangible Assets.

Text: Robert contends that three errors were made in valuing the tangible assets of the law firm. He asserts errors in valuing the accounts receivable, equipment, and work in progress. Margaret's expert valued Robert's law firm's accounts receivable at their book value of $202,454. He made no provision for bad debts. He reasoned that no bad debt reserve was warranted because Robert's practice was primarily insurance company defense. Thus, he felt 100% of the accounts were collectible. Robert's expert valued Robert's law firm's accounts receivable at $180,018. He arrived at his figure by using the actual amount collected out of the $202,454 receivable as of October 24, 1984. He determined that $22,436 of the accounts receivable on October 24, 1984, had been written off. It was clearly erroneous for the trial court to rely on Margaret's figures. The trial court had the actual figures before it and did not have to rely on Margaret's expert's incorrect assumption. The valuation of the firm's office equipment, accepted by the court, was based on replacement cost, arrived at by reference to Robert's corporate insurance policy. Robert relied on a valuation by William Borchardt, manager of Arctic Office Products, for the equipment's fair market value. Upon questioning from the bench, Mr. Borchardt indicated that his valuation was based on the fair market value at the time of trial in 1986, not the value as of October 24, 1984, the date agreed on for valuation. Again, it was clear error to accept Margaret's valuation of the equipment. Reliance on the replacement cost of the equipment was not in accordance with acceptable valuation methods. The trial court should have looked to the fair market value of the equipment. Cf. Hayes v. Hayes, 756 P.2d 298, 299 (Alaska 1988) (rejecting valuation of business based on insurance funded buy out agreement). However, Mr. Borchardt's valuation was of no evidentiary value. On remand the trial court should ascertain or estimate the fair market value of the equipment as of October 24, 1984. Robert also objected to Margaret's valuation of his firm's work in progress. It was valued at $155,584, based on data from the Altman-Weil survey for year ending 1984. [5] Robert used records of his law firm to value work in progress at $60,935. This figure was based on records the firm began keeping in May 1985 and calculations based on work in progress as of February 28, 1985. Robert's expert worked backwards from these figures to determine work in progress on October 24, 1984. Relying on a national survey when actual figures are available is an abuse of discretion. If the trial court found Robert's figures unreliable, it could have obtained reliable figures to value the work in progress. Based on the foregoing, we have a definite and firm conviction that a mistake was made in valuing Robert's law firm's tangible assets. Therefore, we remand the valuation for redetermination.