Purposes of Valuation

Accurate and professional asset valuation plays a vital role in decision-making processes across various industries. Whether it's ensuring compliance with financial reporting standards, securing loans, or determining fair market values, understanding the true worth of your assets is essential.

At Business Assets Valuers, we specialize in delivering tailored valuation solutions. Below, we outline the most common purposes of valuation and how our expertise can support your goals effectively and efficiently.

Financial Reporting Valuations

Our Financial Reporting valuations are in accordance with International Accounting Standards (IASB), the independent, accounting standard-setting body responsible for the development and publication of International Financial Reporting Standards (IFRS). The following standards are usually of importance to consider for financial reporting valuations:

a) IAS 16: Property, Plant and Equipment

IPSAS 45: Property, Plant and Equipment

IAS 16 & IPSAS 45 establish principles for recognising property, plant and equipment as assets, measuring their carrying amounts, and measuring the depreciation charges and impairment losses to be recognised in relation to them. After recognition, an entity chooses either the cost model or the revaluation model as its accounting policy and applies that policy to an entire class of property, plant and equipment:

  • under the cost model, an item of property, plant and equipment is carried at its cost less any accumulated depreciation and any accumulated impairment losses.
  • under the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably is carried at a revalued amount, which is its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations must be made regularly and kept current. Revaluation increases are recognised in other comprehensive income and accumulated in equity, unless they reverse a previous revaluation decrease. Revaluation decreases are recognised in profit or loss unless they reverse a previous revaluation increase.

    • b) IFRS 13: Fair Value Measurement

    The basis of value for Financial Reporting is Fair Value as defined below.

  • IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements.
  • IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). When measuring fair value, an entity uses the assumptions that market participants would use when pricing the asset or the liability under current market conditions, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value.

    • c) IFRS 5: Non-current Assets Held for Sale and Discontinued Operations

    IFRS 5 requires a non-current asset or disposal group to be classified as held for sale if its carrying amount will be recovered principally through a sale transaction instead of through continuing use;

  • assets held for sale to be measured at the lower of the carrying amount and fair value less costs to sell;
  • depreciation of an asset to cease when it is held for sale;

    • Business Assets Valuers team of accredited valuers has excellent knowledge and understanding of the requirements of IAS 16 and IFRS 13 and 5.

    Insurance

    The purpose for insurance valuation of machinery and equipment assets is to provide the insured party with an accurate assessment of the value at risk of plant and other equipment for which s/he is responsible. That is to determine the amount of insurance required and the sum to be paid following loss or damage.

  • Declared Value /Sum Insured

    Declared value and sum insured are terms used to describe the sum total of all property insured at each situation declared by the insured and calculated in accordance with the basis of settlement including foreseeable expenses such as fees associated with planning, architects, surveyors, consulting engineers, legal advisors, etc.

  • Bases of settlement

    Reinstatement with New Value – defined as the cost of replacing existing assets with identical or substantially similar equipment at the manufacturer’s current new prices, together with costs of transport, installation, commissioning and, where appropriate, other directly attributable expenses such as consulting engineers’ fees. The sums insured under a reinstatement insurance policy usually include the following elements of cost:

  • Overnight reinstatement cost estimates
  • Fees and contingencies
  • Estimates in respect of cost increases during the policy period, lead time and reconstruction periods
  • Demolition and debris removal
  • Non- recoverable Taxes



    • Indemnity Value – defined as the equivalent monitory cost of replacing the assets with identical or substantially similar assets in a condition comparable to that of the existing assets. That is the cost necessary to replace, repair and or rebuild the asset insured to a condition and extent substantially equal to but not better or more extensive than its condition and extent at the time that the damage occurred, taking into consideration the age, condition and remaining useful

    Business Assets Valuers has a team of experts that have over 30 years of combined experience in this area of specialty. The following are some of the reasons why insurance valuations are so important to any organization

  • Paying the right amount of insurance premiums based on accurate value of your assets
  • Eliminates the chances of underinsuring your assets
  • Reduces the chances of over insuring of your assets
  • Knowing the assets under insurance
  • Keep upto date with changes in technology, construction costs,

    • Impairment Testing

    IAS 36: Impairment of Assets

    IPSAS 21: Impairment of Non- Cash Generating Assets

    The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired.

    The recoverable amount of other assets is assessed only when there is an indication that the asset may be impaired. Recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use . Fair value less costs to sell is the arm’s length sale price between knowledgeable willing parties less costs of disposal.

    Business Assets Valders’ team , has good understanding of the valuation requirements for impairment testing.

    Business Combination & Purchase Price Allocation

    IFRS 3 Business Combinations

    The core principles in IFRS 3 are that an acquirer measures the cost of the acquisition at the fair value of the consideration paid; allocates that cost to the acquired identifiable assets and liabilities on the basis of their fair values; allocates the rest of the cost to goodwill; and recognises any excess of acquired assets and liabilities over the consideration paid (a ‘bargain purchase’) in profit or loss immediately. The acquirer discloses information that enables users to evaluate the nature and financial effects of the acquisition.

    Our team is well experienced with the requirements for valuations for Mergers and Acquisitions, including Purchase price allocation, Asset Identification and Due Diligence

    Business Sale

    If you want to know how much your established business is worth before selling, talk to the experts. Business Assets Valuers are able to help you with the accurate market value of your entire business.

    The advantage of getting a whole business valuation is that the value reflects the earning capacity of the business and value in use of the assets. Value Accuracy has the capacity to value the whole business as an operational facility and /or provide market values for individual assets including intangible assets.

    Asset Purchase or Sale

    Assets valuations are also performed for assets selling or purchasing purposes. One of the reasons we offer valuation services to our clients is to provide peace of mind that when selling their hard-earned assets or purchasing business assets, they can be assured of accurate indication of market values from the experts. Our team of experts have the knowledge of the market for most of machinery and equipment assets.

    In-kind Capital Contribution

    Asset could be valued for in-kind capital contribution. The basis of value for in-kind capital contribution is Market Value. The equity of a company can be increased in different ways, via a cash injection or via a contribution in kind. A contribution in kind is an equity increase that is not in cash: e.g., contribution of assets. The assets are valued to reflect their fair contribution in monetary terms.

    Insolvency and Liquidation

    BAV team has considerable experience in providing valuations for insolvency matters including administration and liquidation as well as advice on proper disposal/realisation methods

    Matrimonial Property Disputes Resolution

    We also help our clients with valuations for litigation and dispute resolutions. Please contact us if you ever have the needs for dispute resolution valuations.

    Loan Security

    Your assets can be used as security for loan by banks or financial institutions. Our team of experts can help with valuations that comply with banks or financial institutions lending requirements. Depending on the basis of value required by your lending institution, we are able to provide you with the lower end of value (Forced Liquidation Value), the average (Orderly Liquidation Value) and the upper end of value (Market Value). We are able to provide lenders with accurate and reliable advice with regards to expected realisation from your assets.

    Market Value Assessments for Internal Decision Making

    Our team can carry out different market value assessments for internal decision making. Market Value assessments could be under the following assumptions;

  • Market Value in Existing Use – that is installed and in operation
  • Market Value in Exchange – that is uninstalled and ready for sale

    • Valuation Bases

    Bases of value (sometimes called standards of value) describe the fundamental premises on which the reported values will be based. It is critical that the basis (or bases) of value be appropriate to the terms and purpose of the valuation assignment, as a basis of value may influence or dictate a valuer’s selection of methods, inputs and assumptions, and the ultimate opinion of value” IVS 104; 10.1 The following are IVS – defined bases of value:

    Market Value

    Definition

    International Valuation Standard 104, define Market Value as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion

    Fair Value

    Definition

    According to International Financial Reporting Standard, IFRS 13: Fair Value Measurement, Fair Value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

    The asset or liability

    A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date.

    The transaction

    A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions.
    A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:

    a) in the principal market for the asset or liability; or
    b) in the absence of a principal market, in the most advantageous market for the asset or liability.


    Market Participants

    An entity shall measure the fair value of an asset or a liability using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

    The Price

    Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. The price shall not be adjusted for transaction costs but for transport costs, if any. Fair Value as defined in the above referenced accounting standards will generally be consistent with Market Value and defined by the International Valuation Standard Committee above. Therefore, in many instances Fair Value will be equivalent to Market Value.

    Market Rent

    Definition

    Market rent is the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion. IVS 104; 40.1

    Equitable Value

    Definition

    Equitable value is the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. IVS 104; 50.1

    Investment Value

    Definition

    Investment value is the value of an asset to a particular owner or prospective owner for individual investment or operational objectives. Investment value is an entity-specific basis of value. Although the value of an asset to the owner may be the same as the amount that could be realised from its sale to another party, this basis of value reflects the benefits received by an entity from holding the asset and, therefore, does not involve a presumed exchange. Investment value reflects the circumstances and financial objectives of the entity for which the valuation is being produced. It is often used for measuring investment performance. IVS 104; 60.1-2

    Synergistic Value

    Definition

    Synergistic value is the result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values. If the synergies are only available to one specific buyer then synergistic value will differ from market value, as the synergistic value will reflect particular attributes of an asset that are only of value to a specific purchaser. The added value above the aggregate of the respective interests is often referred to as “marriage value.” IVS 104; 70.1

    Liquidation Value

    Definition

    Liquidation Value (IVS104) - defined as the amount that would be realised when an asset or group of assets are sold on a piecemeal basis. Liquidation Value can be determined under two different premises of value.

    Orderly Liquidation - An orderly transaction with a typical marketing period - describes the value of a group of assets that could be realised in a liquidation sale , given a reasonable period of time to find a purchaser (s), with seller being compelled to sell on an as-is, where-is basis.

    OR

    Forced Sale - a forced transaction with a shortened marketing period - describes the price that could be obtained under circumstances where a seller is under compulsion to sell and that, as a consequence, a proper marketing period is not possible and buyers may not be able to undertake adequate due diligence. IVS 104; 70.1

    Contact us to get started

    If you have any questions or inquiries, please feel free to reach out to us via the contact information below.

    Call:

    Australia wide: +61 452 301 974 , +61 45 050 4772
    New Zealand wide: +64 21 920 951

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