In the literature and within the regulation set up by the IVSC (international valuation standards counsil) it is quite clear how to appraise real estate (for example with the aim of getting a loan). Less clear is the valuation and the regulation of the valuation for movable property (like machinery). And because accountants need to be transparant on every value on a balance sheet it is important to start the dialogue.
It is clear that in the valuation of real estate and movable property the income, cost and market approach are accepted. But in case of movable property some uncertainty appears. I will try to make this clear.
In case market references are available it is recommended to use the market approach. This approach is the most used and most clear method. But in case no market references are available of movable property (for example a nuclear reactor barrel) the market approach can not be used and the cost approach (depriciated replacement cost) is recommended.
In order to calculate the fair market value with DRC method the replacement cost new / reproduction cost new needs to be calculated, after doing this the depreciation (based on physical, economic and functional obsolescence) needs to be deducted. However how do you determine the depreciation of a nuclear reactor barrel?
1. Is it within the accountancy accepted to determine the physical detoriation on the base of a linear line, a diminishing value or an Iowa curve (s-curve)?
2. Is it accepted to use the cost-to-capacity method to calculate the functional and economic obsolescence of movable property?
3. Is it accepted to use standardized tax models used for the depriciation to determine the economic life of movable property?
It is clear that in the valuation of real estate and movable property the income, cost and market approach are accepted. But in case of movable property some uncertainty appears. I will try to make this clear.
In case market references are available it is recommended to use the market approach. This approach is the most used and most clear method. But in case no market references are available of movable property (for example a nuclear reactor barrel) the market approach can not be used and the cost approach (depriciated replacement cost) is recommended.
In order to calculate the fair market value with DRC method the replacement cost new / reproduction cost new needs to be calculated, after doing this the depreciation (based on physical, economic and functional obsolescence) needs to be deducted. However how do you determine the depreciation of a nuclear reactor barrel?
1. Is it within the accountancy accepted to determine the physical detoriation on the base of a linear line, a diminishing value or an Iowa curve (s-curve)?
2. Is it accepted to use the cost-to-capacity method to calculate the functional and economic obsolescence of movable property?
3. Is it accepted to use standardized tax models used for the depriciation to determine the economic life of movable property?
