IBBI Plant & Machinery flashcards

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

Replacement Cost New

The current cost to acquire or construct an asset of equivalent utility and capacity using modern materials and methods, before deducting any depreciation. It is the starting point of the cost approach.

Reproduction Cost New

The current cost to reproduce an identical asset using the same materials, design and specification. It is usually higher than replacement cost new for older machinery and is used where exact replication is relevant.

Effective age

The age indicated by the actual condition and utility of the asset, which may be less or more than its chronological age. It is used as the numerator in the age-life depreciation formula.

Total economic life

The period over which an asset is expected to contribute value to its owner before it becomes economically obsolete. It ends at economic retirement, not necessarily at physical breakdown.

Age-life depreciation

A method computing depreciation as effective age divided by total economic life, expressed as a percentage of replacement cost new. It assumes straight-line loss of value over the asset's economic life.

Curable physical deterioration

Deterioration that can be corrected at a cost equal to or less than the value it adds, such as deferred maintenance or repairable wear. The cost to cure is deducted directly from replacement cost new.

Incurable physical deterioration

Deterioration whose correction would cost more than the value added, such as long-run wear in short-lived components. It is measured by age-life or observed condition methods and deducted as a percentage.

Functional obsolescence

Loss of value caused by internal inadequacies or excesses in the asset compared with modern equivalents, such as excess operating cost, excess capital cost or inadequate capacity. It arises from within the asset.

Economic obsolescence

Loss of value caused by external factors outside the asset, such as reduced demand, new regulation, competing technology or locational disadvantage. It is applied after physical and functional depreciation.

Excess operating cost

The additional annual cost of operating an obsolete asset compared with a modern equivalent, such as higher fuel or labour use. It is capitalised over remaining life to measure incurable functional obsolescence.

Excess capital cost

The amount by which the cost of the existing asset exceeds the cost of a modern equivalent of the same capacity. It is a form of functional obsolescence measured as the difference in replacement cost.

Observed condition method

A depreciation method that assigns separate percentages to components based on their physical condition, then weights them by cost. It is more detailed than the age-life method for complex process plant.

Breakdown method

A depreciation method that values each component of an asset separately, applies its own depreciation, and sums the results. It suits assets whose parts have materially different lives.

Market approach for machinery

A valuation method using prices of comparable machines sold in the secondary market, adjusted for capacity, age, condition, make, accessories and delivery. It requires an active market for the specific equipment.

Income approach for plant

A method valuing plant by discounting the net cash flows it is expected to generate over its remaining economic life at a risk-adjusted rate. It suits income-producing or leased equipment.

Liquidation value

The estimated amount realisable on a forced sale within a defined short period, assuming the asset is sold as-is without marketing. It is typically lower than fair value and used in insolvency contexts.

Orderly liquidation value

The realisable amount from a sale conducted over a reasonable marketing period with the asset in place. It sits between fair value and forced liquidation value in the hierarchy of premises.

Forced sale value

The price obtainable when a seller is compelled to sell within a time frame too short for normal marketing. The discount reflects the absence of a proper marketing period and limited buyer pool.

Going concern value

The value of an assembled, operating asset group including the synergy of installation, workforce and contracts. It usually exceeds the sum of individual asset values on a stand-alone basis.

Synergistic value

The additional value created by combining assets or businesses beyond the sum of their individual values. It is an element of going concern value and must be disclosed separately in the report.

Valuation date

The specific date to which the value opinion applies, reflecting market conditions and asset condition on that date. It must be stated in the report and may differ from the report date.

Premise of value

The assumed circumstances of the valuation, such as fair value, market value, going concern or liquidation. It determines which methods and adjustments are appropriate and must be disclosed.

Insolvency valuation report

A report prepared by a registered valuer for an insolvency resolution process, stating the liquidation value and fair value of the assets with the basis, method and assumptions used.

Registered valuer

A person registered with the IBBI under the Companies (Registered Valuers and Valuation) Rules to conduct valuations in an asset class such as plant and machinery. Registration is asset-class specific.

Asset class plant and machinery

The IBBI asset class covering industrial plant, machinery, equipment and related installations. Valuers must hold registration in this class to issue plant and machinery valuation reports.

Site visit and inspection

The physical examination of the plant to verify identity, capacity, condition, installation and accessories. Findings support effective age, remaining life and depreciation estimates in the report.

Installation and foundation cost

Costs of foundations, erection, commissioning and connection to utilities that make machinery operational. They are included in replacement cost new where the asset is valued in place.

Freight and taxes in cost

Transport, insurance, duties and non-creditable taxes incurred to bring the asset to its location. These are added to the ex-works price to arrive at replacement cost new.

Capacity adjustment

An adjustment to comparable sale prices for differences in throughput or rating, often using a power rule such as the six-tenths factor. It reflects the non-linear cost-capacity relationship.

Six-tenths rule

A cost-capacity relationship where cost varies approximately with capacity raised to the power 0.6. It is used to adjust replacement cost or comparable prices between different plant sizes.

Residual value

The estimated amount recoverable from an asset at the end of its economic life, often as scrap or salvage. It reduces the depreciable base in cost and income approaches.

Salvage versus scrap value

Salvage value is the amount realisable from an asset sold for reuse after removal; scrap value is the amount realisable from its dismantled material. Scrap value is normally lower.