Appraisal of Machinery and Equipment
Appraisal of Machinery and Equipment
Appraisal of Machinery and Equipment
PARA
CREASAT
Comprehensive Real Estate Appraisal Seminar and Training
2013
B. Valuation Methodology
The two approaches commonly used in the appraisal of machinery and equipment are
the Market Approach and the Cost Approach discussed in the preceding chapter
1. Two major elements of cost that enter into arriving at the proper estimate of cost of
reproduction cost, new, are the Direct Costs and Indirect Costs.
a. Direct Costs are those elements of cost directly related to the acquisition and
installation of the unit, such as the basic cost, freight charges, insurance, bank
charges and commission, duties and taxes, other landing charges and handling and
cost of transportation to site.
b. Indirect Costs are those elements of cost not directly related to the acquisition of a
specific item of the property but with relation to the installation and acquisition of
the entire property, such as, design and engineering, technical know-how, and pre-
operating expenses.
(The Assessor must be able to detect whether the equipment is new or second
hand)
(Trend Factor – Kemper International Replacement Value Cost Trend)
2. For imported brand new machinery, the market value shall be based on its
acquisition cost, which is the actual cost to the owner when the same is not yet
depreciated or appraised within the year of its purchase, plus the costs of
freight, insurance, bank and other charges, brokerage, arrastre and handling,
duties and taxes, plus the cost of inland transportation, handling and
installation charges at the present site. The cost in foreign currency shall be
converted to peso cost on the basis of the foreign currency exchange rates
when such machinery was actually purchased as fixed by the Bangko Sentral ng
Pilipinas (BSP).
3. By the expressed provision of the Local Government Code, the acquisition cost
of the machinery shall be based on the actual cost to the owner when it was
acquired. The cost in foreign currency shall be converted to peso cost based on
the foreign exchange rate then prevailing when the same was acquired.
4. In all other cases the cost in foreign currency of imported machinery shall be
converted to peso equivalent based on exchange rates fixed by the BSP at the
time of acquisition and apply a depreciation allowance of not exceeding 5% per
year.
FORMULA:
ILLUSTRATION:
To compute in peso:
ILLUSTRATION:
ILLUSTRATION :
6. Section 225 of the Local Government Code provides that depreciation allowance
for machinery shall be made at a rate not exceeding five percent (5%) of its
original cost or its replacement or reproduction cost, as the case may be, for
each year of use: Provided, however, that the remaining value for all kinds of
machinery shall be fixed at not less than twenty percent (20%) of such original,
replacement, or reproduction cost for so long as the machinery is useful and in
operation.
8. Transmission Lines, Transmission Towers, Cell Sites and the likes shall be
assessed like all other machineries and taxes thereon shall be paid to the local
government unit where they are constructed. Transmission lines including the
posts shall be appraised on the basis of its total value using the cost or income
approach and the total market value shall also be apportioned or pro-rated
between the local government units where these lines traverse.
9. Submerged pipe lines for natural gas, water, etc., shall be appraised on the
basis of the cost or income approach, the total market value thereof shall be
apportioned or pro-rated between the local government units they traverse.
10. Reservoir, dams, tailing ponds, piers and wharves shall be appraised on the
basis of the cost approach. Provided, however, that the cost of pilings on ports
must be given additional consideration.
Good Condition (55%-75%) – This term describes those items of equipment which
have been modified or repaired and are being used at or near their fully specified
utilization but the effects of age and/or utilization in the foreseeable future.
Fair Condition (35%-50%) – This term describes those items of equipment which
are being used at some point below their fully specified utilization because of the
effects of age and/or application and which require general repairs and some
replacement of minor elements in the foreseeable future to raise their level of
utilization or near their original specifications.