Facts About Plant And Equipment Valuation

Plant and equipment valuation can simply be summarized in the following ways below:

Description
Identification
Price determination
Value establishment

It should be noted that when it comes to valuing plant and equipment, the same approaches adopted during real property valuation are also applicable. Some of them are:

The valuation, “fair value” and “market value” methodologies are the same being used for the purpose of financial reporting. Also, specialized assets which are traded freely in the open market are treated or valued in a similar way as real property.

Plant and equipment have properties or features that make them different from real assets. These tend to go a very long way in determining how their market value will be determined. For instance, they are very flexible as compared to real property. In other words, they can be moved from one location to another. Also, they depreciate much faster as compared to real assets. Their market value can depend on numerous factors. They can be valued collectively or individually. Other factors that can determine market value could be whether such item is to be removed or relocated.

Using the DRC approach, such asset’s depreciation rate will have to consider the asset’s remaining life in relation to its total life. A plant or equipment’s remaining life and total life can be limited to the activities for which it is put to use. For instance, an asset’s usage can be limited by legal, statutory or contractual requirements. In the same vein, the effective life of a lease can affect the asset’s remaining life. Market value usually reflect these scenarios.

Valuation by sample

There are times when valuation of plant and equipment may prove to be unrealistic. This could be due to the diversity of such assets. Cases like these require that the valuation is arrived at based on a sample.

Sampling is useful in a situation whereby the assets to be valued share lots of similarities. On the other hand, it will become very complex and complicated when the assets are diverse. For instance, a group of fictional novels with recurring theme to be valued based on a sample of 4 or 5 items. On the other hand, the valuation will become more difficult when the books in question are rare.

Whenever you are suspecting that there is weakness in the register of an asset, it will have to be tested and verified via sampling prior to going through any valuation process. If you have an in-depth knowledge about the asset population, valuation can be in the form of per unit value of the product being multiplied by the number of assets.

To avoid any form of bias, the samples’ size and composition will have to be random and also stratified. This is very crucial when the assets seem to be varied. For populations that are large and varied, the help of a professional will be required.

Assets with unusually low value or high value will be grouped as outliers. These should be valued individually using the generic material valued (remaining) based on sample reference.

Generally speaking, the total amount for valuation being determined for the purpose of financial report has to be reliable when sampling is used. The reliability should be up to an error (standard) of 10%. The reason for this is to ensure 100% material accuracy of the valuation.

In a situation whereby we are not confident of your sampling method, verification may be required from you with the help of a professional statistician. Again, this is to ensure that the valuation’s methodology as well as reliability are accurate.

The best company for plant and equipment valuation

Are you searching for a trusted company that can help in carrying out professional plant and equipment valuation? GANTPMV can meet your needs in such regards without any compromise. Over the years, we have proven to be highly experienced in carrying out an accurate valuation process of plant and equipment for different companies. Contact us today for more information.

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