Machinery, Equipment, and Personal Property Valuation
This domain tests the cost approach in detail, the definition and measurement of the three depreciation categories, and the distinction between installed and uninstalled, in-place and removal values.
Cost approach mechanics
- Reproduction cost replicates the identical asset; replacement cost new reflects a modern equivalent with equivalent utility and is usually preferred where technology has moved.
- Both must include freight, foundations, installation and commissioning so the figure is an installed, in-place value. Quoting a bare machine price and calling it replacement cost is the single most common defect.
- Physical deterioration: curable items are measured by deferred maintenance cost; incurable wear is measured by age-life (effective age divided by total economic life) or observed condition scoring.
- Functional obsolescence: excess capital cost (the asset costs more than a modern equivalent) or excess operating cost (capitalised penalty over remaining life).
- Economic obsolescence: external factors such as demand loss, regulation, or a constrained site.
Sales comparison for mobile equipment
Match on serial number, year, hours, configuration, attachments and region. Auction results require adjustment for buyer's premium, transport, and pre-sale condition.
Worked example
A machining centre has an installed replacement cost new of $450,000, effective age 6 years against a 15-year economic life, functional obsolescence from excess power and tooling cost of 8% of cost, and 5% economic obsolescence. Additive method: physical loss 40% = $180,000; functional = $36,000; economic = $22,500; indicated value $450,000 - 180,000 - 36,000 - 22,500 = $211,500. The multiplicative version, 450,000 x 0.60 x 0.92 x 0.95, gives about $236,000. Either is defensible when disclosed; the error is switching methods between comparable assets without saying so.
Traps
- Mixing installed and uninstalled figures in one comparison.
- Deducting both physical deterioration and the full cost of a refurbishment already captured in condition.
- Asserting obsolescence without quantifying the penalty or its remaining life.
- Valuing a trade fixture as real property, or real property as a chattel, without the annexation analysis.