Asset Valuation Practice I (Tangible & Resource Assets) flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Market value definition

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

Highest and best use

The reasonably probable use that is legally permissible, physically possible, financially feasible, and produces the highest value; it frames the valuation of real property.

Investment value

Value to a particular owner or prospective owner based on that party's individual investment or operational objectives, not the general market's assumptions.

Fair value under IFRS 13

An exit price received to sell an asset in an orderly transaction in the principal or most advantageous market at the measurement date, using market participant assumptions.

Contingent fee prohibition

A fee tied to the reported value, litigation outcome, or tax result creates an unmanageable self-interest threat and is generally prohibited for valuation engagements.

Valuation date versus report date

The valuation date is the effective date of the value conclusion; the report date is when the report is issued and may be later.

Scope of work elements

Identification of the asset, basis of value, valuation date, extent of investigation, and the nature and extent of data relied upon in the assignment.

Extraordinary assumption

An assumption that something is true though unverified, which, if false, would materially change the value conclusion and must be disclosed.

Hypothetical condition

A condition that is contrary to what exists at the valuation date, assumed to analyze a proposed or alternative scenario, and disclosed in the report.

Direct capitalization formula

Value equals net operating income divided by the capitalization rate; the rate is drawn from comparable sales or band-of-investment analysis.

Band of investment

A capitalization rate built as the weighted average of the mortgage constant and equity dividend rate, weighted by loan-to-value and equity share.

Gross income multiplier

Sale price divided by gross income; usable only when comparables have similar expense ratios and lease structures.

Accrued depreciation components

Total depreciation splits into physical deterioration, functional obsolescence, and external or economic obsolescence, each measured separately in the cost approach.

Replacement versus reproduction cost

Replacement cost new recreates equivalent utility with modern materials; reproduction cost new replicates the exact asset including its existing deficiencies.

Economic obsolescence

A loss in value from factors external to the asset, such as reduced demand, regulation, or below-capacity operation, quantified by utilization or margin loss.

Functional obsolescence

A loss from deficiencies within the asset, including excess capital cost, excess operating cost, or technological deficiency relative to a modern equivalent.

Orderly liquidation value

The value realized in a forced sale after a reasonable marketing period to a limited buyer pool, as distinct from a short-window forced liquidation.

Trade fixture

An item attached by a tenant for business use that is typically removable; realty or personalty classification follows law and lease terms.

Proved reserves

Quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

Working interest versus royalty

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

Decline curve analysis

A method fitting historical production trends to forecast future rates, often hyperbolic early in field life and exponential in late life.

Unitization

Pooling of interests in a reservoir so each owner receives a share of total production proportional to contributed acreage or reserves.

IAS 41 measurement rule

Biological assets are measured at fair value less costs to sell at initial recognition and each reporting date, unless fair value cannot be measured reliably.

Biological asset versus produce

Biological assets are living plants or animals; agricultural produce is the harvested product, measured separately once it is harvested.

Bearer plant treatment

Bearer plants are excluded from IAS 41 and accounted for as property, plant and equipment under IAS 16; their produce remains in IAS 41 scope.

Timber valuation inputs

Standing timber value uses growth and yield models, harvest scheduling, species mix, site index, and log prices, separated from bare land value.

Excess earnings method

A method allocating value between tangible assets and intangibles by capitalizing earnings above a fair return on the tangible asset base.

Relief-from-royalty method

An intangible valuation method discounting the royalty payments avoided by owning the asset rather than licensing it, at a risk-adjusted rate.

Reconciliation of approaches

Selecting and weighting value indications with reasoned justification for which approach best reflects the evidence, not simple averaging of results.

Trending historical cost

Applying a cost index to historical acquisition cost to estimate current cost new, using an index matched to asset type, location, and period.

Data reliability hierarchy

Verified transactional evidence ranks above asking prices, offers, and hearsay; source independence and verification status should be documented in the work file.

Coefficient of variation

The standard deviation divided by the mean, expressing dispersion of comparable data relative to its average and aiding comparability assessment.