BASIS OF VALUATION

INTRODUCTION – BASIS OF VALUATION

Value concept in valuation is an economic concept; it refers to a monetary relationship between property or goods and services either for transaction. Value is a fact not an opinion. 

 

In the valuation of plant and machinery, bases of valuation vary in accordance with purpose for which the valuation is required. The following are the basis for valuation:

 

1.FOR COMPULSORY ACQUISITION AND COMPENSATION: The basis of valuation for compulsory acquisition and compensation of plant and machinery assets is usually for compensation for disturbance, which include removal costs, losses of equipment fixture, stocks, plant and machinery, etc, is treated separately from compensation for the land and building. If as a result of acquisition business is totally extinguished, compensation for disturbance represented by the losses on plant and machinery will be the loss of forced sale of any plant and machinery that can be sold, including the going-concern value of any other plant and machinery less scrap value (if any). The owner here must show that he has obtained the best price either by advertising, auctions or any other way for machinery sale.

2.     FOR INSURANCE:The of valuation for insurance of plant and machinery assets is the cost indemnifying the insured. That is cost of putting him back into a position no better and no worse than his position before suffering the damage or loss. Virtually most of the insurance policies in Nigeria, for instance, have a reinstatement memorandum included, which modifies the principle of indemnity. In the event of any loss, the insurance company will pay out the cost of replacing the loss asset with a similar asset in similar condition but the full price of purchasing a branch new asset to replace the lost plant or machinery. This is “new” for “old” approach and is devoid of any depreciation allowance. Reinstatement with the new insurance value should however. Take full account of transportation, installation and commissioning cost and the engineer’s fees, and allowance made for cost of debris removal.

 3.     FOR RATING:valuation of plant and machinery for rating is by “contractors test”. Annual value of plant and machinery at a different percentage on capital value is added to the value of the land and buildings. What actual has to be considered is the value of the complete hereditament. An “end allowance” if due, is given to the total assessment including element for plant and machinery. Probable lifespan must be taken in to consideration in the other expenses necessary to maintain the hereditament in a state to command the annual gross rent; the hereditament here include ratable plant and machinery.

 

4.     PROBATE: This is the worth of an interest in landed property for purpose of assessing estate duties on the interest of deceased owner.

Valuation in this regards is often approached by laid down procedure as contained in the relevant legislation concerning estate duty. But in most cases, the approaches is often that of the open market value with necessary allowance for whatever might be item of deduction as stipulated by the relevant legislation.

The basis of probate valuation of plant and machinery for probate valuation purposes is statutory valuation.

REFERENCE

KUYE OLUSEGUN: PRACTICAL APPROACH TO PLANT AND MACHINERY VALUATION.

MR. JONES FUANEKWU (2004): PROPERTY TAXATION IN NIGERIA. PUBLISHED BY DEBO  PUBLISHING COMPANY IWO