IBBI Plant & Machinery common mistakes
IBBI Plant & Machinery · Understand the traps and how to avoid them.
Valuing the plant and machinery asset as a going concern by default when the engagement is a liquidation or insolvency valuation, without first fixing the premise of value in writing.
Candidates carry over the going-concern assumption from routine bank or financial-reporting work and never test which premise the appointing authority (liquidator, resolution professional, secured creditor) actually needs. IBBI-registered valuers are frequently engaged in CIRP and liquidation contexts where the premise changes the entire approach.
What to do instead
At engagement acceptance, record the premise of value (going concern, orderly liquidation, forced liquidation), the purpose, and the intended user in the engagement letter. State the premise explicitly in the report and show how it drove the choice of method and the quantum of depreciation or discount applied.
Applying a single straight-line depreciation rate to the whole block of assets and calling the result fair value, instead of building value from replacement cost less physical, functional and economic obsolescence.
Depreciation is the most familiar tool from fixed-asset registers, so candidates reach for it under time pressure. They forget that book depreciation reflects accounting policy and tax life, not the market's view of remaining utility, and that obsolescence components must be separately evidenced.
What to do instead
For each asset or asset group, start from current replacement cost new, then deduct physical deterioration (based on condition assessment, hours run, or remaining useful life), functional obsolescence (excess capacity, suboptimal technology, layout), and economic obsolescence (external demand, regulatory, or locational factors). Show each deduction as a separate line with its basis.
Treating land, building, and the installed machinery as one lump value without segregating what is being valued and what is excluded.
Plant and machinery valuations often sit inside a larger asset sale or insolvency estate, and candidates conflate the movable plant with the immovable structure. This inflates or deflates the answer and creates allocation disputes among stakeholders.
What to do instead
Prepare an asset register that classifies each item as plant and machinery, immovable structure, or excluded item (for example, assets owned by third parties or under finance leases). Value each class separately and reconcile the total to the engagement scope. State inclusions and exclusions in the assumptions section.
Selecting comparable sales of similar machines without adjusting for capacity, age, condition, make, location, and market timing, and then averaging them.
The market approach looks simple, and candidates treat comparables as directly transferable. In practice, second-hand machinery markets are thin and heterogeneous, so unadjusted averages produce indefensible numbers.
What to do instead
For each comparable, document source, date, capacity, year of manufacture, condition, and location, then apply explicit upward or downward adjustments for each difference. Explain why each comparable is relevant and weight the evidence rather than averaging blindly. Where comparables are too few, say so and corroborate with the cost approach.
Using the income approach on a machine in isolation without identifying the cash flows and contributory assets that actually generate those flows.
Candidates apply discounted cash flow mechanically to an asset that does not earn revenue on its own. They then attribute the whole business cash flow to the plant, double-counting returns on working capital, intangibles, and the building.
What to do instead
Where the income approach is used, apply it at the level of the cash-generating unit, then allocate value to the plant using a contributory asset charge or residual method. Justify the discount rate, growth assumptions, and the allocation logic, and cross-check the result against the cost approach.
Ignoring the cost of dismantling, removal, and site restoration, or ignoring installation, freight, and commissioning costs, depending on which direction suits the number.
Candidates focus on the machine itself and forget the surrounding transaction costs. In a liquidation or relocation scenario, removal and decommissioning costs can be material and are routinely omitted, overstating realisable value.
What to do instead
For market or liquidation values, deduct estimated dismantling, removal, and restoration costs where the asset is to be relocated. For replacement cost new, include freight, duties, installation, foundation, and commissioning. State the treatment explicitly and disclose the source of the cost estimates.
Presenting a single point estimate with no sensitivity analysis, no cross-check by a second method, and no statement of limiting conditions.
Candidates treat the report as an answer sheet rather than a professional opinion. They stop once a number emerges and omit the reasoning that a reviewer or tribunal will test.
What to do instead
Cross-check the primary method with at least one alternative and explain any reconciliation. Include a sensitivity table for the key variables (discount rate, remaining life, realisable price). Add limiting conditions, reliance on client-supplied data, and the valuer's assumptions and caveats.
Misstating the valuer's role, eligibility, and independence, or failing to disclose prior involvement with the asset or the parties.
Candidates focus on numbers and neglect the regulatory and ethical framework under which IBBI-registered valuers operate, including registration, class of asset, and conflict-of-interest disclosure requirements.
What to do instead
In the report, state the valuer's registration details, the class of assets covered, the basis of engagement, and any prior or current relationship with the entity or asset. Disclose conflicts and confirm independence. Keep the engagement letter, terms, and fee arrangement on record.
Confusing the valuation date with the report date and using data from the wrong point in time, or failing to state the valuation date at all.
Candidates draft reports over several days and pull the latest available data, which may post-date the valuation date. In insolvency work the valuation date is often fixed by the appointment or a specific event.
What to do instead
Fix the valuation date in the engagement letter and state it prominently in the report. Use only information available as at that date, and disclose any subsequent events known at the report date that would have changed the opinion.
Describing the plant in generic terms without a technical condition assessment, nameplate data, capacity, or utilisation history, so the value cannot be traced to evidence.
Candidates rely on client asset registers and depreciation schedules, which list cost and book life but not condition. Without an inspection record, physical deterioration and functional obsolescence cannot be substantiated.
What to do instead
Conduct and document a physical inspection: nameplate details, year of manufacture, rated capacity, observed condition, maintenance records, and utilisation. Map each register line to an inspection finding, and where inspection was not possible, disclose that limitation and adjust the reliance placed on management representations.