Valuation of equipment and machinery

Equipment and tools used to perform a task and prepared by another person, group, or thing. It is equipped with special objects used for specific purposes this means all tangible assets and all interests, rights, and obligations related to them that exist individually or not.

They are used, for example, in industry, production, transportation, assistance in operations, administrative purposes, or the supply of services. Such as resources, furnishings, appliances, etc. It can also be defined as goods used in providing services. For example, in the field of transportation of vehicles on railways.

Machinery is a group of machines that work together to perform a single task. For example: Mining machinery includes all machines used in the mining process. A machine is a tool consisting of one or more parts. It works with energy to perform a specific task. They are usually powered by mechanical, chemical, thermal, or electrical energy, and are often equipped with motors.

In the past, an operating tool was classified as a machine if it contained a moving part, unlike equipment that does not move on its own and is used manually.

Methods of valuating equipment and machines:

Market style:-

The market approach is applied by a certified valuator to machines and equipment traded in the markets. It is difficult to use this approach to measure the value of something in a limited market because of insufficient sales transactions. Therefore, market data is a basic requirement for applying the market approach in any valuation process, and this means that the market approach becomes appropriate under the changing circumstances that lead to the development of market data analysis.

Therefore, it is not correct to use sales that took place during sluggish economic activities during a period of economic prosperity. Non-investment properties are usually valued, which is characterized by their marketability using this method.

The market approach takes into account recent prices paid for similar assets in the used machinery and equipment market, as well as adjustments made to market prices. These adjustments are determined to reflect the condition and utility of the asset being valuated relative to market comparisons.

The logic behind the market approach is that a prudent investor can go to the market and buy an existing facility or various pieces of equipment located in the market.

The market used machinery and equipment to obtain an operational range.

The market approach is applied using the following methods:

• Comparison method (comparable sales).
• Traditional method based on experience.

Cost method:-

The cost approach is mainly applied to services related to machinery and equipment that are often exchanged in the market or do not generate revenue themselves.

This method of valuing new or special-purpose machinery and equipment is beneficial. The cost approach is based on the concept that a prudent investor will not pay for personal property. More tangible than the cost of producing an alternative property with equal benefits. The cost approach usually provides reliable indications of the value of assets without reference to a known second-hand market.

The cost approach is applied using the following methods:

Modern replacement cost method:

Replacement cost is the amount of existing plant, machinery, and equipment similar to the machinery being valuated.

Book value method:

This means that a person will not rely on the cost method in valuing machinery and equipment based on the principle of replacement beyond what he pays for an alternative asset that performs the same purpose. In other words, the job price is paid for the asset being valued. The costing approach used in valuing machinery and equipment involves the valuer finding the replacement cost of the asset and then deducting any value lost as a result of economic or functional obsolescence or physical deterioration. The best way to determine the value of the replacement cost is to find the recent replacement cost.

Income approach:-

In its simplest form, the income approach is an estimate of the present value of future benefits accruing to the owner of plants and machinery, or of specific benefits or rights that a person has in ownership.

This approach applies to investment properties that provide services and are tradable and self-liquid. The income approach measures the full effect of aging, it explains it more clearly in contrast to the market and cost approach.

The economic facility consists of working capital, fixed assets, intangible assets, and all their elements. This economic facility is valuated based on its expected future income.

The amount generated by the entity is derived from income as determined for all assets of the entity operating within the group. Income is what determines the value of the enterprise, It can be arrived at through a series of calculations that take into account all the elements affecting the return.

The income approach is applied using the method of capitalizing returns through capitalization rates. This approach determines the present value of future benefits (income in relation to ownership).

The income approach is not normally applied to separate items of machinery and equipment unless they are leased.

This approach is often used to value a group of assets or independent units of machinery that work together to deliver a marketable, income-generating product.

It requires two steps:

1- Income forecast

2- Derivation of the capitalization rate

Asset Experts Professional Consulting Company is pleased to provide its services in valuating machinery and equipment, we will provide you with an approved valuation report. For more details about the valuation, we are happy to contact you on the number: 0555550431.