Asset Valuation Practice I (Tangible & Resource Assets) cheat sheet

Independence requires no financial interest in the subject asset, no contingent fee tied to the reported value, and no fee agreement conditioned on a predetermined result.

A contingent fee based on the value reported, the outcome of litigation, or a tax result creates a self-interest threat that generally cannot be reduced to an acceptable level.

The valuation date, report date, and date of inspection are distinct; value conclusions apply only as of the stated valuation date.

Intended use and intended users must be identified before scope decisions; a report is not suitable for a use or user not contemplated in scope.

Scope of work must include identification of the asset, basis of value, valuation date, extent of investigation, and nature and extent of data relied upon.

Where significant information is unavailable or unverified, disclose the limitation and consider whether the resulting assignment is a valuation or a limiting-condition opinion.

Confidentiality obligations survive engagement completion; disclosure is permitted where required by law, regulation, or professional review body.

Record retention should preserve work files, data sources, and correspondence for a period consistent with applicable professional and legal requirements.

Market value is the estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing, with each acting knowledgeably, prudently, and without compulsion.

Market rent is the estimated amount for which an interest in property should lease on the valuation date on appropriate lease terms in an arm's length transaction.

Investment value is value to a particular owner or prospective owner for individual investment or operational objectives, reflecting that party's assumptions and criteria.

Fair value in financial reporting (IFRS 13) is an exit price in the principal or most advantageous market, measured using market participant assumptions.

Liquidation value reflects a forced or constrained disposal timeline and generally sits below market value; forced sale value should specify the assumed marketing period.

Value in use is the present value of future cash flows expected from an asset's continued use and eventual disposal, typically for impairment testing.

Highest and best use is the reasonably probable, legally permissible, physically possible, financially feasible use that produces the highest value.

Depreciation in valuation terms splits into physical deterioration, functional obsolescence, and external (economic) obsolescence; it is not an accounting allocation of cost.

Cost approach to machinery: replacement or reproduction cost new, less physical deterioration, less functional obsolescence, less economic obsolescence, plus or minus land/installation adjustments.

Physical deterioration may be measured by age-life ratio, observed condition scoring, or remaining useful life; all three should reconcile where data permit.

Functional obsolescence includes excess capital cost (overcapacity), excess operating cost (inefficiency), and technological deficiency relative to a modern equivalent.

Economic obsolescence is external to the asset, for example reduced demand, regulatory shutdown, or a plant operating below rated capacity; quantify by capacity utilization or margin loss.

Personal property includes tangible items such as machinery, furniture, vehicles, and trade fixtures, and may include intangible items classified separately in the jurisdiction.

Trade fixtures are attached by a tenant for business use and are typically removable; classification as realty or personalty follows law and lease terms, not attachment alone.

Installation, freight, taxes, and foundation costs are part of the asset's installed cost and must be treated consistently between the cost new and the subject asset.

Orderly liquidation value assumes a reasonable marketing period to a limited buyer pool; forced liquidation assumes a short, defined disposal window.

Direct capitalization: value equals net operating income divided by the capitalization rate; the rate must be derived from comparable evidence or band-of-investment analysis.

Band of investment: capitalization rate equals the weighted average of mortgage constant and equity dividend rate, weighted by loan-to-value and equity share.

Gross income multiplier equals sale price divided by gross income; it is valid only when comparables share similar expense ratios and lease structures.

Discounted cash flow requires explicit lease-by-lease income, vacancy and credit loss, operating expenses, capital reserves, and a reversion based on terminal capitalization.

Sales comparison adjusts for real property rights conveyed, financing terms, conditions of sale, market conditions (time), location, and physical characteristics.

Cost approach: land value plus replacement cost new of improvements less accrued depreciation; most reliable for new or specialized improvements with weak income evidence.

Allocation of value between land and buildings is required for depreciation and property tax purposes; land is never depreciated in the cost approach.

Lease analysis distinguishes contract rent from market rent; above- and below-market leases create leasehold or leasehold-encumbrance value adjustments in DCF.

Reserves are classified by certainty: proved (reasonable certainty), probable (more likely than not), and possible (less likely than not), with each category tied to a defined development plan.

Proved developed producing reserves are the lowest-risk category; proved undeveloped reserves require a firm development plan within the reporting entity's stated horizon.

The income approach for mineral interests discounts net cash flow after royalties, severance taxes, operating costs, capital expenditures, and abandonment obligations.

Decline curve analysis fits historical production to forecast future rates; hyperbolic decline is common early, with exponential decline often assumed at late life.

A working interest bears its share of costs; a royalty interest bears no costs and receives a fixed fraction of gross production or revenue.

Unitization pools interests in a reservoir so that each owner takes a share of total production proportional to contributed acreage or reserves.

Depletion and depreciation for accounting differ from valuation deductions; valuation discounts future net cash flow directly rather than applying book depletion.

Price decks, discount rates, and escalation assumptions must be stated; a value conclusion without disclosed price and discount assumptions is not reproducible.

Biological assets are living animals or plants; agricultural produce is the harvested product of biological assets and is measured separately once harvested.

IAS 41 requires biological assets to be measured at fair value less costs to sell, both at initial recognition and at each reporting date, unless fair value cannot be measured reliably.

Fair value of a biological asset reflects its present condition and location; costs to sell include broker fees, transfer taxes, and levies but exclude transport to market.

Bare land and bearer plants are outside IAS 41 scope; bearer plants are treated as property, plant and equipment under IAS 16.

Timber valuation separates land, standing timber, and the underlying bare forest land; the income approach uses growth and yield models with harvest scheduling.

Water rights and allocations are valued by the capitalized value of the crop or use they enable, net of delivery costs and regulatory constraints.

Vineyard and orchard valuation requires vine age, variety, trellis system, yield history, and replanting cost; older plantings may carry functional obsolescence.

Livestock valuation may use market price per head adjusted for weight, grade, health, and freight, or the present value of expected offspring and product.

Three approaches: cost, market (sales comparison), and income; the valuer selects and weights based on data availability and the asset's market participation.

Reconciliation is not averaging; the valuer explains why one approach is more reliable given the evidence and the asset's characteristics.

Replacement cost new is the cost to create an asset with equivalent utility; reproduction cost new replicates the exact asset including its obsolescence.

Trending applies an index to historical cost to estimate current cost new; the index must match asset type, location, and time period.

Excess earnings method allocates value between tangible assets and intangible assets by capitalizing earnings above a fair return on tangible assets.

Relief-from-royalty values an intangible by discounting avoided royalty payments at a rate reflecting the risk of realizing the benefit.

In DCF, the discount rate reflects time value and risk; the terminal value must be consistent with the forecast's stabilized assumptions.

Sensitivity analysis identifies which assumptions (price, discount rate, absorption) most affect the conclusion and should be disclosed in the report.

Data hierarchy: verified transactional evidence outranks asking prices, offers, and hearsay; each source's reliability and independence should be documented.

Adjustment grids must show the direction and magnitude of each adjustment and the reasoning; unsupported net adjustments are not evidence.

Statistical support includes mean, median, mode, coefficient of variation, and regression; median is generally preferred when the sample has outliers.

A valuation report must state the asset, basis of value, valuation date, scope, approach, key inputs, and any limiting or hypothetical conditions.

Hypothetical conditions assume something contrary to fact; extraordinary assumptions assume something unverified that materially affects the conclusion.

Report types range from a comprehensive narrative report to a restricted-use report; the level of detail must match the intended use and users.

Effective date discipline: post-valuation-date events may be disclosed but must not change the reported value as of the valuation date.

Work files should let a reviewer replicate the analysis: source data, adjustment rationale, calculations, and model assumptions.