Valuation of Plant & Machinery
Plant and machinery valuation refer to finding the market value of all plant and machinery assets used in manufacturing and distributing goods and services by a business. Businesses are constantly using plants and machinery. Therefore, a business needs to determine the price and establish a value to these fixed assets regularly.
Plant and machinery valuation is a tedious job and must be performed by a well-qualified appraiser or valuer since it has a lot of variables. Valuation methods are chosen based on the purpose of the valuation. For example, if the purpose of a valuation is to find the value received when an asset is sold in the open market, then the market approach to valuation will be used.
Preparation of Valuation Report on Plant & Machinery
Depends upon case to case basis
- Preparation of Project Report
- Preparation of Business Proposal
- Preparation of Business Plan
- Business or Individual planning to get their plant and machinery valued for any purposes.
- Purchase of Plan
- Expert Assigned
- Share the details as requested
- Preparation of Report/Proposal.
- Details shall be requested directly at the time of preparation.
Approach to Valuation of Plant & Machinery
The market approach, cost approach, and income approach to valuation are applied to determine the value of plants and machinery. The approach to valuation is chosen after defining the purpose of valuation. However, the market approach to valuation, depreciated replacement cost method or a combination of the two are commonly used to determine the value of such assets.
Appraisers use the market approach of valuation to determine the market value of the assets in question by analyzing historical market transactions. On the other hand, the depreciated replacement cost method or cost approach to valuation calculates the current value of assets by estimating the cost of replacing the machine with a similar asset in the same condition.
Valuation of Plant and Machinery involves estimating the value for a specific purpose of particular interest in the property at a particular moment in time taking into account all features of the property and the machinery while considering all factors of the market.
Plant and machinery valuation exercise as it has lots of variables including the type of plant and machinery as they differ from industry to industry and also depends on the product being manufactured. Others include specific utility or usefulness of its design and applicability to its intended production of goods and services to be deployed in determining the value of such assets. Maintenance practices adopted, usefulness, replacement cost, salvage value— taking into account the current value, cost of import, exchange rate, elapsed and balance life of equipment are factors that influence its value. Sapients has a strong techno-commercial team comprising of engineers from various disciplines that have vast experience of providing services for valuation of plant & machinery to large industrial conglomerates in varied sectors including Agro-Based Industry, Cement, Construction Equipment, Cotton Industry, FMCG, FMEG, Food Processing, Fertiliser, Footwear, Glass, Home Furnishings, Hospitality, Information Technology, Infrastructure, Metal, Pharmaceutical, Power Plants, Chemicals, Pulp & Paper, Semi-Conductors, and Stationery & Printing Industry, etc.
Purpose of Plant & Machinery Valuation
Plant and machinery valuation is used to establish the value and determine the price of fixed assets. Plant and machinery valuation is performed for the following purposes-
- Financial Reporting- Documenting the fair value of your business’s tangible assets is essential because investors like to be informed about their investment in the business’s property, plant, and machinery. Valuation is important to discern the deprecation charges and impairment losses.
- Financing- Plant and machinery valuation is important if your business requires external funding and financing. Valuation is also useful to bring in more machinery whenever a need for one is required.
- Buying and selling machinery- Valuation is necessary to decide the right time to buy and sell machinery.
- Estimating the life of the machinery- Valuation of machinery is important to estimate the remaining useful life of machinery. It is useful to ascertain when and if the machinery requires repair or when it should be replaced. Valuation of machinery helps the business ascertain the efficiency of the machinery.
- Regulation of risks- Valuation of plants and machinery is performed to regulate any risks attached to your business’s operations. It ascertains all possible threats that could threaten the efficient functioning of your business.
Importance of Valuation of Plant & Machinery
Plant and machinery valuation is significant for a business in the following ways-
- This type of valuation allows a business to determine any potential risks to its business. Valuation of plant and machinery is beneficial for a business from a financial and logistical point of view. It helps a business prepare for any risks.
- Valuation of plant and machinery is beneficial for investors and stakeholders of a business who wish to acquire plant and machinery. Stakeholders can make an educated and informed decision while investing in any plant or machinery, as the valuation presents a rough estimate of the fair value of such assets.
- Similarly, suppose your business wishes to sell some or all of its assets. In that case, they need to determine the estimated asset price based on current market conditions, the state of the machinery itself, and recent supply and demand.
- Plant and machinery valuation is important to ascertain the collateral value of the asset in exchange for newer machinery.
- Valuation of plant and machinery also benefits the business as it helps comply with legal and regulatory requirements. The value of assets determined by valuation is important for financial reporting and auditing.
- This type of valuation helps ascertain the remaining lifespan of the machinery. Valuation ascertains how much the machinery has depreciated in value and how much longer it will be able to perform its function.
- Valuation of plant and machinery is useful for businesses as it ascertains if they need new machinery for better efficiency. It is also important for businesses if they require financing for said newer machinery.
- Plants and machinery are long-term investments. Therefore, it is useful to perform a valuation as it verifies the asset before buying it.