Asset Valuation Practice I (Tangible & Resource Assets) study materials
Asset Valuation Practice I (Tangible & Resource Assets) study resources

Asset Valuation Practice I (Tangible & Resource Assets): Machinery, Equipment, and Personal Property Valuation

Asset Valuation Practice I (Tangible & Resource Assets) · Work through your exam, one topic at a time.

All guide sections

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.