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- Valuing Machinery and Equipment
- LESSON 3. Valuation of Machinery and Equipment
Outlines the three principal types of valuation of plant and machinery — insurance, financial and open market. Discusses the techniques appropriate to each and possible future development in the field. Concludes that the demand for plant valuation services is increasing and suitably qualified students need to be persuaded to opt for what is probably the least known discipline within the profession. Derry, C. Report bugs here.
Valuing Machinery and Equipment
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical photocopying, recording or otherwise, without the prior written permission of the American Society of Appraisers, Sunset Hills Rd. Both bodies are working cooperatively to address standards for appraisal and valuation; and just as impor- tantly, working together to produce and promote best practices in appraisal and valuation of specific property types, assets and liabilities.
Such measures are a significant example of the growth and recognition of our profession on the world stage. American Society of Ap- praisers ASA designated professionals are active in both bodies assisting these needs. In my years of appraisal and valuation practice, I have always regarded the work of James C. Our own Henry A.
Leadership globally in the appraisal and valuation of machinery and equipment can be traced back to ASA members holding the MTS designation, who have tirelessly given of themselves and their individual practices to cooperate with appraisal and valuation bodies around the world. As with past editions, this book will be cited as an authoritative source for the appraisal and valuation of machinery and equipment.
Lee P. The writing and preparation of this text is the culmination of the efforts of a num- ber of appraisal professionals. These individuals have contributed countless hours to this project and it is their dedication and commitment to the profession that have made this manuscript possible. From writing to reviewing, advising to critiquing, each one of the following individuals has provided valuable input in one form or another.
David H. Miles, Jr. Wood, ASA This third edition has been built upon the very strong efforts that went into the development of the previous and editions. We again thank the contributors to these previous editions.
Huether, FASA, who chaired the subcommittee forming this book, enlisted its contributors, and began the whole process, and by Mrs. Donna M. Rocca, who assisted in the assemblage of all of the information that went into this publication.
Disclaimer This book is not intended to be an advanced text. Neither is it meant to be a defini- tive or complete statement of the theory and methods of appraising machinery, equipment, and industrial assets and facilities. Every appraisal must be based on full knowledge of the facts and circumstances of the subject asset s , as well as the industry and the economic environment in which the asset s exist and produce. A particular valuation process or approach that is relevant for one asset at a particular point in time may not be appropriate for another asset or a different point in time.
The Machinery and Technical Specialties MTS appraisal field is so vast that no single text could contain all the required information. The authors have sought to present a comprehensive overview of the MTS appraisal discipline, useful as an introduction for those new to the field and a convenient reference and review tool for experienced valuation professionals.
In-depth study of specific aspects of machinery and equipment valuation is left to other texts and classes. In machinery, equipment, and other technical specialties fields, as in any profes- sional discipline, one will find a variety of acceptable techniques for solving problems. Because the authors have chosen to include certain methods and theories in the book does not mean that other methods and theories not included herein are in any way inferior or un- acceptable.
Through a process of discussion and debate, the authors arrived at a consensus on material to be included in the book. Future editions may include additional or different techniques, as the theory and methods of appraising machinery, equipment and industrial assets and facilities continue to evolve in this vibrant, developing field.
Define important terms. State the basic concepts of value. Specify the different definitions of value used by machinery and technical specialties MTS designated appraisers.
Introduce the three approaches to value. Differentiate price, cost, and value. Contrast accounting and valuation depreciation. State appraisal purposes, objectives, and events that influence appraisal value. Describe the types of clients encountered by MTS appraisers. Definition of Appraisal and Value Appraisal is the act or process of developing an opinion of value.
Determination of the value of property. Estimation of the cost of a production of a new property, b replacement of an existing property by purchase or production of an equivalent property, or c reproduction of an existing property by purchase or production of an identical property. Determination of the nonmonetary benefits or characteristics that contribute to value; the rendering of judgments as to age, remaining life, condition, qual- ity, or authenticity of physical property.
Forecast of the earning power of property. In this book, the terms appraisal and valuation are used interchangeably. USPAP defines appraisal consulting as the act or process of developing an analysis, recommendation, or opinion to solve a problem, where an opinion. Definitions of Value Relating to MTS Assets The underlying theme and elements of the definitions presented here are based in standard appraisal theory. Many terms are used to describe various thoughts or premises of value.
These definitions are offered to provide the fundamental value concepts; they are not the only acceptable definitions, since contracts or jurisdictions may dictate somewhat dif- ferent philosophies.
Therefore, these definitions may be expanded or refined as the purpose and function of an appraisal dictate, as long as the fundamental concepts are not altered. In other cases, the laws of a country, state, region, or regulatory agency may require other terms, which therefore would take precedence over the definitions shown here. Because the machinery and technical specialties MTS appraiser deals with a vari- ety of assets, most of which can be moved, it is necessary to recognize different definitions of value.
Sale for removal for a similar or alternate use, 2. Continued or as installed use of the asset for the purpose for which it was designed and acquired, 3.
Hence, use of the term value or fair market value is modified or refined to cre- ate special definitions to fit the needs of a particular appraisal. These modifiers provide a specific definition of value to guide the work of the appraiser. The following list of the various definitions of value that the appraiser will encounter is not intended to be complete.
The list begins with a basic definition of fair market value and then presents the various refinements of the term that are used to fit the needs of the appraiser. Sale for Removal or Alternate Use Fair Market Value is an opinion expressed in terms of money, 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, as of a specific date. Fair Market Value — Removed is an opinion, expressed in terms of money, 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, considering removal of the property to another location, as of a specific date.
Continued Use or Capacity for Use Fair Market Value in Continued Use with Assumed Earnings is an opinion, ex- pressed in terms of money, 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, as of a specific date and assuming that the business earnings support the value reported, without verification.
Fair Market Value in Continued Use with an Earnings Analysis is on opinion, ex- pressed in terms of money, 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, as of a specific date and supported by the earnings of the business. Fair Market Value — Installed is an opinion, expressed in terms of money, 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, considering market conditions for the asset being valued, independent of earnings generated by the business in which the property is or will be installed, as of a specific date.
These concepts are all similar with some minor nuances. In each of these instances the property is capable of being used at its present location. Therefore, the amount includes the depreciated value associated with all normal direct and indirect costs, such as instal- lation and other costs, to make the property fully operational. The continued use concepts consider the property as a part of a business enterprise whereas the installed concept con- siders the property separate from the business enterprise and gives no consideration as to whether the property is or is not being used.
Since the two continued use concepts consider the use of the property, economic justification is required for the determined value. Under assumed earnings concept, the appraiser assumes there exists economic justification for the reported value, and under the earnings analysis concept, an analysis of the business earnings needs to be undertaken to provide justification for the reported value.
Liquidation Orderly Liquidation Value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a liquidation sale, given a reasonable period of time to find a purchaser or purchasers , with the seller being compelled to sell on an as-is, where-is basis, as of a specific date.
Forced Liquidation Value is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a properly advertised and conducted public auction,6 with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basis, as of a specific date.
Liquidation Value in Place is an opinion of the gross amount, expressed in terms of money, that typically could be realized from a properly advertised transaction, with the seller being compelled to sell, as of a specific date, for a failed, non-operating facility, assuming that the entire facility is sold intact. All of the liquidation concepts require a seller being compelled to sell whereas the fair market value concepts include a willing seller with no compulsion. The primary difference between orderly and forced liquidation is the assumed time period for selling the property.
Orderly liquidation value provides for a reasonable period of time, and forced liquidation value provides for a sense of immediacy. Orderly liquidation value and forced liquidation value assumes the property would be sold piecemeal and liquidation value in place assumes the entire facility is sold intact.
All of the definitions listed in this text may be expanded or redefined by the ap- praiser as the purpose and function of the appraisal dictate, so long as the fundamental and. Others Other important value definitions include the following: Salvage Value is an opinion of the amount, expressed in terms of money, that may be expected for the whole property or a component of the whole property that is retired from service for possible use elsewhere, as of a specific date.
Scrap Value is an opinion of the amount, expressed in terms of money, that could be realized for the property if it were sold for its material content, not for a productive use, as of a specific date.
Insurance Cost New is the replacement or reproduction cost new as defined in the insurance policy less the cost new of the items specifically excluded in the policy, as of a specific date. Insurable Value Depreciated is the insurance replacement or reproduction cost new less accrued depreciation considered for insurance purposes, as defined in the insurance policy or other agreements, as of a specific date.
Definitions for values and value premises other than those presented above may be acceptable. The appraiser may expand or refine a definition as the purpose and function of the appraisal dictate, as long as the fundamental and underlying concept is not altered without a compelling reason such as being required by law.
Price and Cost Distinguished The appraiser often receives financial information about the property to be ap- praised in which the terms price, cost, and value are used interchangeably by accountants and the general public.
Appraisers carefully distinguish between these terms. Price is defined as the amount a particular purchaser agrees to pay and a particular seller agrees to accept under the circumstances surrounding their transaction. In other words, price is a fact. The term cost is used by appraisers in relation to production, not exchange.
Cost may be either an accomplished fact or a current estimate. The terms price, cost and value may have different interpretations by various ap- praisers. One example might be to say that price is what is marked, cost is what is paid, and value is what one may obtain after the purchase.
Approaches to Value There are three generally recognized approaches to the determination of value: cost, sales comparison, and income.
These approaches are briefly defined here and are discussed in detail in later chapters. The logic behind the cost approach is the principle of substitution: a prudent buyer will not pay more for a property than the cost of acquiring a substitute property of equivalent utility. Although USPAP requires that each of the three approaches to value be considered when it is necessary for credible assignment results, the valuation of certain assets or the valuation definition under consideration may make the development and use of all three approaches impractical.
The cost approach, without sufficient research and quantification of depreciation and obsolescence, may not accurately reflect the value of a particular asset. It may not be possible to use the income approach to determine the in-use value of equip- ment because it may be impossible to isolate the income attributable to the equipment.
The sales comparison approach would be impossible to use for a one-of-a-kind machine that has never been exposed to, or sold in, the marketplace. There are many other examples.
LESSON 3. Valuation of Machinery and Equipment
When valuing all assets, the appraiser must determine which of the three standards of value Fair Market Value, Fair Value ASC and Fair Value Statutory to utilize and which of three general approaches to value that can be applied to determine an opinion of value. Because of that, it is imperative for a client to specify to the appraiser exactly how the appraisal will be used. Client needs dictate what details and support will be necessary to pass third party reviews of auditors, financial institutions and governmental agencies. For many assets, the installation costs can exceed the costs of the equipment or machinery. Accordingly, used market machinery transactions will not represent an asset's value to the enterprise.
Each of these three bases has its own definition. If the valuation is for Financial Statement purposes, e. The definitions are as follows:. Equitable Value : The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. Fair Value : The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market sector participants at the measurement date. Fundamental assumptions must then be adopted under each basis, the most common being in respect of Market Value or Equitable Value, i. T he method of valuation, on the other hand, is determined by the approach the valuer uses to reach his or her opinion on whatever basis they have adopted.
competence for professional valuation of plant,. equipment and machinery (PEM) between the. Nigerian Institution of Estate Surveyors and.
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Lesson 3: Valuation of Machinery and Equipment 2. Gadd, J. L "Machinery and Equipment".
Вы говорили с Дэвидом сегодня утром. - Разумеется. - Стратмора, похоже, удивило ее недоумение. - Мне пришлось его проинструктировать. - Проинструктировать.
Он посмотрел еще внимательнее. Да, он сумел прочитать эти слова, и их смысл был предельно ясен. Прочитав их, Беккер прокрутил в памяти все события последних двенадцати часов.
Почему вы не дождались полицейских. И не отдали кольцо. - Мне много чего нужно, мистер Беккер, но неприятности точно не нужны. Кроме того, тот старик вроде бы обо всем позаботился.