Plant and Equipment Valuation: Why It’s Important

 Plant and Equipment Valuation: Why It’s Important

If you’re running a business that maintains large fleets of vehicles or construction equipment, relies heavily on machinery or tools or operates significant plant or equipment, then you understand the importance of regularly investing in valuation services.

Plant and equipment valuation is used to identify, describe, determine the price and establish the value of fixed assets.

Plant and machinery require regular valuation because these assets can be moved or relocated and will depreciate faster than real property. The value can also change depending on whether it’s valued alone or in combination with other associated items.

Whether it’s a single piece of machinery to an entire manufacturing or mining operation, working with experienced plant and equipment valuers is essential for the financial integrity of your business.

Here’s just a few reasons why plant and machinery valuation is so important.

Accurate financial reporting

Properly documenting the fair value of your plant and equipment is essential. Your financial statements should allow users to clearly discern information about an entity’s investment in its property, plant and equipment and the changes in such investment.

Valuation for financial reporting is important to recognise the assets, determine their carrying amounts, and to calculate their depreciation charges and impairment losses.

Asset verification

All plant and machinery valuers need to know what kind of assets that they are buying. When you go through the valuation process, you can verify that this is going to be an asset that your business can actually make use of. That’s very important for the long-term running of any business.

Understanding the fair value of plant and machinery is essentially the same as determining market value, a process required by the ATO.

Estimated remaining useful life

Valuation is also important when it comes to estimating the remaining useful life. Remaining useful life is the length of time plant or machinery can operate before needing repair or replacement. Understanding this can help to schedule maintenance, avoid downtime and optimise operating efficiency.

Risk management

Staying on top of the potential risks to your business is vital to running things safely and effectively. If you go for a valuation, then you can work out the potential risks to you from a financial and a logistical perspective. This helps you to understand the potential risks you should prepare for as a business moving forward.

Business valuation

To value your business, you have to fully and independently document the value of your plant and equipment. This helps you to know exactly what all of your most important assets are worth to your business, which is absolutely massive in a modern business context. If you do that, you should be much more likely to get a valuation that you can be happy with.

Buying and selling equipment

Of course, having a value in mind lets you know what you could/should buy and sell for when the times comes. This allows you to get the best value for money, making sure that you aren’t confused about what is and is not a ‘good deal’ to your business.

Equipment financing

Lastly, plant and machinery valuation matters as it helps you to know how much financing you would need. Should you need to bring in more machinery to complete a task, a full valuation program will help you to get the job done in a simple, effective manner. This lets you know exactly the kind of funds you need to round up if you wish to expand further. You can also have a look on our blog on the What Plant and Machinery Valuers Do

Nicholas Munn

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