Plant and machinery valuers are needed to calculate the worth of an organisation’s plant, machinery or equipment. These are fixed assets and can include land and buildings, vehicles, furniture, office equipment and appliances, computers, tools, machinery and other equipment.
The types of fixed assets belonging to any business will vary widely according to industry and business size. For corporate offices, assets requiring valuation will largely consist of office equipment, furniture, computers, servers and maybe some vehicles. Whereas for industries like transport, warehousing and logistics, mining and construction, the complexity for plant and equipment valuers can be substantial.
Whatever the industry, valuing these assets requires the services of a valuation professional and is required for a variety of reasons.
Why is plant and equipment valuation needed?
Plant and machinery valuation is required for a large range of financial, tax, legal and regulatory reasons. Some of these include:
- Financial reporting
Plant and machinery valuation is required for various financial purposes including the recognition of the assets, their carrying amounts, the depreciation charges and impairment losses.
- Tax consolidation
Fixed asset evaluation is regularly required for the purposes of tax consolidation and is regularly scrutinized by the ATO. Valuation for tax purposes involves identifying and describing all fixed assets, determining the price and establishing value.
- Insurance valuations
Detailed valuation is required to ensure the proper insurance coverage on all plant, equipment and machinery. Many insurance valuations are based solely on replacement with new cost. However, this doesn’t take into account inflationary costs, or currency fluctuation, post the valuation date.
- Business prospectus valuation
A financial prospectus is a disclosure document provided by a company to potential buyers of a business.An initial public offering (IPO) Prospectus must meet a detailed level of disclosure as required by the Australian Stock Exchange (ASX).
- Buying or selling plant or equipment
Before significant plant or equipment can be bought or sold, it needs to be independently valued.
Valuation is require for a range of other reasons including transfer pricing, risk management, leasing and finance, state duties, litigation evidence, fixed asset register verification and more.
Methods for valuing plant, equipment and machinery
There are several methods that valuers may use to determine valuation. The three primary methods are the cost approach, the market approach and the income approach.
In the cost approach, the valuation is performed in terms of abiding by the principle of substitution. The principle of substitution refers to the idea that people will not pay any more for a particular asset being valued than what the person can pay to have a similar asset purchased. In essence, the person doing the valuation will come up with the theoretical replacement cost for the asset in order to create a final financial value.
In the market approach, the valuation is performed in terms of taking into account all recent transactions of similar machines. These transaction records will then form the basis of a mathematical and strategical assessment of what the asset being valued is worth based on current market value.
In the income approach, the valuation is performed in terms of determining an appraisal value based on the potential income that the asset will bring in the future. The income approach is not typically performed for machinery and equipment due to the complex nature of projecting potential future income.