Asset Valuation Practice I (Tangible & Resource Assets) key terms

The stated premise on which a valuation is prepared, such as market value, fair value, or investment value. It defines the assumed transaction, the parties, and the conditions, and drives method selection.

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

A 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. In financial reporting its meaning is set by the applicable accounting standard.

The value of an asset to a particular owner or prospective owner for individual investment or operational objectives. It reflects entity-specific factors and can differ from market value.

The amount that could reasonably be received in a sale completed within a restricted or shortened timeframe, where the seller is under pressure and normal marketing is not possible. It is a distinct basis, not market value.

The net amount realised from disposing of assets, either piecemeal or as a group, when a business ceases trading. It may assume orderly or forced conditions and typically deducts disposal costs.

The value of an operating business or asset in its current use, including the assembled workforce, contracts, and synergies that would not exist if the assets were sold separately.

The present value of the future cash flows expected from an asset in its current use, without assuming a sale. Under accounting standards it is an entity-specific measure compared with fair value less costs of disposal.

The use that is physically possible, legally permissible, financially feasible, and produces the highest value for a property. It may be the current use or a redevelopment alternative.

A transaction between parties who are independent, unrelated, and act in their own self-interest, with no compulsion or special relationship. It is a defining condition of market value.

A hypothetical buyer or seller in the relevant market who is knowledgeable, willing, and able to transact, and whose assumptions and behaviour inform fair value measurement.

The specific date to which the value opinion applies, reflecting market conditions and asset status as at that date. It is not the same as the report date or inspection date.

The date on which the valuation conclusion is expressed to be valid, which may be retrospective or prospective relative to the report date. It must be clearly stated in the report.

The state of being free from financial, personal, or other interests that could bias a valuation opinion. It underpins objectivity and must be assessed and disclosed before accepting an engagement.

The ethical requirement to form conclusions without bias, prejudice, or undue influence from the client or other parties. It applies to data selection, analysis, and reporting.

A situation where a valuer's other interests, relationships, or engagements could impair, or appear to impair, impartial judgement. It must be identified, disclosed, and managed or declined.

The written agreement defining the scope of work, the asset, the basis and purpose of value, the valuation date, assumptions, limitations, fees, and responsibilities of each party before work begins.

The documented extent of research, inspection, and analysis required to produce credible results for the intended use. It must be agreed with the client and be sufficient for the assignment.

The purpose for which a valuation is prepared and the parties entitled to rely on it. Both must be identified, because they determine the appropriate basis of value and reporting detail.

A method that estimates the current cost of replacing an asset's capacity, less physical deterioration and functional or economic obsolescence. It is often used where market evidence is scarce.

The current cost of acquiring or constructing a new asset with equivalent utility or capacity, using modern materials and methods. It is the starting point before deducting depreciation.

The current cost of creating an identical replica of an asset using the same materials, design, and workmanship. It is used where the asset's exact features matter, such as heritage items.

A loss in value from causes other than physical deterioration. Physical or functional obsolescence arises from design or technology; economic obsolescence arises from external market or locational factors.

A reduction in value because an asset's design, specification, or capacity is less efficient or less desirable than a modern equivalent, including excess operating costs or over-capacity.

A loss in value caused by external factors outside the asset, such as reduced demand, new regulations, or neighbourhood decline. It is also called external obsolescence.

A method that estimates value by analysing prices of similar assets sold in the market, then adjusting for differences in condition, capacity, age, location, and terms of sale.

A method that converts an asset's expected net income into value, either by dividing income by a capitalisation rate or by discounting a cash flow projection over a holding period.

A method that builds value from the cost of land plus the current cost of improvements less accrued depreciation. It is most reliable for new or specialised assets with limited market evidence.

A rate, usually derived from market evidence, that expresses the relationship between a single year's net operating income and value. It reflects risk, growth, and financing expectations.

A technique that projects periodic cash flows and a terminal value, then discounts them to present value using a rate reflecting risk and the time value of money.

The rate applied to convert future cash flows to present value. It reflects the time value of money and the risk specific to the asset or project being valued.

Deriving a rate or adjustment factor from observed market transactions, such as dividing net income by sale price to obtain a capitalisation rate. It grounds the analysis in actual evidence.

A structured table comparing a subject asset with comparable sales, showing quantitative or qualitative adjustments for each difference, and reconciling to an indicated value.

An adjustment expressed as superior, similar, or inferior rather than a precise percentage, used when data are thin or differences resist reliable quantification. It must be reasoned and disclosed.

An adjustment expressed as a specific amount or percentage derived from paired data, cost, or statistical analysis, applied to a comparable to reflect a difference from the subject.

Economic life is the period over which an asset profitably contributes to its owner's operations. Remaining economic life is the portion left at the valuation date and drives depreciation estimates.

The age an asset appears to be, based on its condition, maintenance, and utility rather than its actual chronological age. It can be greater or less than actual age.

The price at which property would change hands between a willing buyer and seller, neither compelled to act and both having reasonable knowledge, as defined in tax and expropriation statutes.

The compulsory taking of private property by government or an authorised body, usually with compensation assessed on a statutory basis. Valuations often address market value plus disturbance.

Categories describing the confidence in recoverable quantities of a mineral or petroleum resource. Proved reserves are commercially recoverable with high confidence; probable reserves are less certain.

A scheme, such as measured, indicated, and inferred, describing the geological confidence in a mineral occurrence. Resources are not reserves until demonstrated to be economically recoverable.

The systematic reduction of an extractive asset's value or tax basis as reserves are produced and sold. It reflects consumption of a finite resource rather than physical wear.

The discounted value of future net cash flows from producing a defined reserve base, using forecast prices, costs, production profiles, and a risk-adjusted discount rate.

A living plant or animal, or a group of them, subject to valuation. Under agricultural accounting standards, biological assets are measured at fair value less costs to sell.

The process of growth, degeneration, production, and procreation that changes the quantity or quality of a biological asset. It explains value changes between reporting dates.

A living plant used to produce agricultural products over several periods, such as a fruit tree or grapevine. It is accounted for as property, plant, and equipment rather than as a biological asset.

Tangible or intangible assets that are movable and not classified as real property, including machinery, equipment, vehicles, furniture, and trade fixtures. Valuation depends on whether it is attached.

An item attached to real property by a tenant for business use that remains the tenant's personal property and is removable. Classification affects what is included in each valuation.

The ownership rights in land and improvements, including the bundle of legal interests, rather than the physical land itself. Valuation addresses those rights as constrained by title and regulation.

Local government regulation of land use, density, and development. It constrains legally permissible uses and therefore the highest and best use and value of a property.

Identifiable tangible assets used in production or service delivery, such as plant, tools, and vehicles. Valuation considers capacity, condition, installation, and market demand for the specific unit.

The investigation and verification of facts, title, condition, and records before a valuation or transaction. It reduces the risk of relying on inaccurate or incomplete information.

The process of confirming that information used in a valuation is accurate, complete, and relevant, through site inspection, documents, or independent sources. It supports credible conclusions.

The final step in which the valuer weighs the indications from different approaches and methods, explains the judgement, and arrives at a single value conclusion.

A supposition that assumes something contrary to fact or unverified, such as a pending lease or unconfirmed title. If false, it could materially change the opinion of value.

An assumption that a valuer adopts for the purpose of the valuation, such as a hypothetical transaction or completed development, that differs from the actual situation at the valuation date.

A statement in the report that restricts the use, distribution, or reliance on the valuation, or discloses constraints on information and inspection that affect the conclusion.