A Businessman’s Guide to Plant & Machinery Valuation

Many Australian businesses require plants and machinery to function. Whether it’s large oil companies and auto manufacturers to breweries, and cafes, many businesses own property, plant, and equipment (PPE) assets. PPE assets are considered tangible assets that play a vital role in a business’ processes and operations. Some examples of these include agriculture machinery, manufacturing, mining, chemical, communication equipment, coffee machines, and construction equipment. Several Government entities have to regularly review their book values of the non-financial assets for financial reporting reasons. This valuation is generally to be prepared for fair value reporting in accordance with Australian Accounting Standards AASB13 Fair Value Measurement.

In this article, we’ll cover the importance of getting an accurate plant and machinery valuation plus what business owners should know approaching a valuer. We’ll also run you through why working with a professional certified practicing valuer specialising in plant and machinery is the almost always the best choice.

Plant and machinery valuation

To keep it simple, valuation involves determining the current value of a particular asset. In the case of PPE, this means estimating the current asset value of plant and/or machinery. Valuations like these are usually performed by a professional and certified practicing valuer who has been trained and licensed to assess tangible assets.

Now, you may be wondering why these valuations are so important. For most businesses, PPE is a major investment and crucial to the ongoing business operation and success of your business. Having an accurate valuation conducted is vital to sound business decisions, especially when it comes to financial transactions, mergers and acquisitions, stamp duty, tax, financial reporting, impairment and insurance coverage.

Preparations for plant and machinery valuation

Clear communication with your professional valuer is crucial for putting an accurate number on any of your business’ assets. Our biggest piece of advice is that you prepare all documentation surrounding the purchase and maintenance of the PPE. This information will make it possible for your valuer to assess your tangible assets correctly and quickly. From there, they will provide insight into the appropriate and relevant valuation methodologies and can sometimes provide valuable recommendations for the improvement of your assets.Requirements for plant and machinery valuation

For the smoothest experience when working with valuation services, there are a few requirements that you must comply with. These include the following:

A fixed asset register: This is a record of assets that belong to your business or company.

Detailed inventory listing of assets: These include the description, model/type, serial number, and maker’s name, own reference number, size and capacity, age, year of manufacture, year of installation, any modifications, usage and record of maintenance, name of manufacturer/supplies.

Scheduled maintenance and service: You have to provide the maintenance schedules and the service hours of your plant and machinery.

Providing all of these necessary details will help the valuer perform their duties as smoothly as possible and come up with a reliable, accurate and trusted valuation of your assets.

Basis of Valuation

This is very crucial for assessment of market valuation of plant and machinery assets. These are Market Value (in-situ), Market Value (ex-situ) or Market Value (continuing use as a going concern).

Market Value (in-situ) of plant and machinery assets is assessed on the presumption that following sale plant and machinery will be used at the same location.

Market Value (ex-situ) of plant and machinery assets is assessed on the presumption the following sale plant and machinery assets will be removed from current location and used at another location.

Market Value (continuing as a going concern) further assumes that the assets will be sold by way of a private treaty sale where the assets will remain in their existing place and location, therefore, in-situ following sale.

Underlying the definition of Market Value on a continuing use basis is a presumption that the entity is a going concern without any compulsion, intention or need to liquidate, otherwise wind up its operations or undertake a transaction on adverse terms, and assumes that the earnings support the value reported.

Valuation of plant and machinery assets are largely estimated by market or sales comparison approach, cost approach (i.e. optimised depreciated replacement cost). Upto some extent income approach is also considered for valuation.

Assessment of Depreciation and Obsolescence: This is utmost important when specialised plant and machinery assets are subject to valuation. Consideration of straight line or diminishing balance method of depreciation, as well as assessment of technical, functional and economic obsolescence. It is also a requirement of International Valuation Standards (IVS) that all the valuation reports should sufficiently address all forms of depreciation and obsolescence for accurate reporting and compliance.

Furthermore, the above market value basis of valuation should not be confused with orderly or forced liquidation values which are normally required for insolvency proceeding or liquidating distress assets at auction.

Conclusion

There’s no denying that PPE makes up a big part of many companies’ assets. Given the difference their true value can make on business and financial decisions, it’s crucial for them to be regularly maintained and properly valued. When seeking a plant and machinery valuation, make sure to follow the preparation tips outlined above.

Ultimately, the valuation report you’ll receive for your plant and machinery will make you an informed business leader who can make sound decisions for the good of the company.

We provide valuation services Australia Wide for property, plant, and equipment as well as infrastructure assets. If you’re looking to value your company’s plant and machinery, get in touch with us to see how we can help!