Business valuation needs to be precise, timely, and cost-effective to ensure a company’s competitive edge in today’s volatile business world. Defining the value of plant and machinery is referred to as a plant and machinery valuation. Companies generally hire professionals to conduct accurate valuations. There are a variety of machines or devices used in several different industries to produce goods and services. Construction, mining, manufacturing, food processing, hospitality, or hospitals are all services. You can summarize plant and equipment valuation in the following ways:
- Price determination
- Value establishment
Facts About Plant & Machine Valuation
Here is a list of things you generally don’t know about plant and machinery valuation.
In general, plant and machinery are classified into two distinct categories:
- Plant and machine valuation typically includes assets that form part of factory or commercial building service installations.
- Other categories include manufacturing equipment installed in industrial or commercial processes. It includes furniture, decor, fittings, vehicles, fixtures, molds, and small tools.
Plants and equipment are generally moveable, so their value depreciates faster than real estate. Its valuation varies depending on whether being valued with other assets or as an individual.
Plant and machine valuation encompasses a wide range of industries like engineering, chemical, textile, metal, glass & ceramic, food & beverages, sugar, distillery, and others. Consequently, the valuer should adhere to the competency clause, which may even require a special license or registration.
There are a number of terms related to plant and machinery valuation that you need to know.
- Plant: A building that combines and interlinks various machinery and equipment.
- Machinery: An apparatus that performs a specific function in operation.
- Equipment: Resources used to support business operations.
You should know the purpose of plant and machine valuation, as valuation varies according to its purpose. A typical plant and machine valuation is conducted for the following purposes:
- Financial reporting
- Mergers & acquisitions
- Loans & fundraising
- Purchase or Lease of New Property
- Disinvestment of distressed assets
- Planning and management
- Litigation or dispute purposes
- For Initial Public Offerings
- Cost investigations
- Tax calculation
5. Accounting standards:
The cost or fair value of an entity’s plant and machinery is part of its balance sheet after removing depreciation and impairment. A plant and machinery valuation may require a different approach and assumptions than those used in the valuation for another purpose in a statement of financial position. In addition, it is important to distinguish between values reported for different purposes.
6. Valuation methods:
When valuing plants and machinery, it is necessary to estimate all forms of depreciation for all types of plants, machinery, and equipment. There are four types of depreciation parameters that affect the machinery life: physical, functional, economic, and environmental. Experts may also use different charts while calculating depreciation.
Plant & machine valuations rely directly on an accurate and detailed inventory list. The list contains all the relevant information relating to the description or the notes that will affect the individual’s values. A valuer who will create the inventory thoroughly and conscientiously is unlikely to encounter any confusion. It is readily understandable and reminds the appraiser of all the salient components throughout the property during the evaluation process. Further, a well-written, concise inventory that guides the reader through the inspection of assets will also impress the client.
8. Valuation Report:
During preparing a report on the valuation of plant and machinery, the appraiser must keep an eye on several critical details. Information such as intended use, intended user, location, method of valuation, manufacture, make, model, year of manufacture, capacity, fixture types, and power requirements is included.