How to Perform used Plant and Machinery Valuation?

 

Plant and machinery are long-term, tangible assets that are crucial for business operations. Agriculture machinery, mining, coffee machines and communication equipment are a few examples of it. Typically, they serve the production and supply aspects of goods or services in all industries. However, companies might need to have a valuation performed for their plant and machinery. The purpose could be for insurance, purchase or sale.

The critical fact – plant and machinery valuation is quite tedious and comes with a lot of fluctuations.

In this blog, we’ve got you covered with the valuation of used plant and machinery. Also, we’ll take you through the importance of performing the valuation of fixed assets.

Valuation Of Plant And Machinery:

The majority of businesses hand over the valuation job to plant and machinery values. They are certified and possess the required license and experience. The primary reason behind roping in professionals for this job is valuation is quite tedious and includes a lot of fluctuations. However, in a simple two-step process, you’ll be able to value your plant and machinery.

1. Determine The Equipment And Accumulate Its Information
   What all equipment do you want to evaluate? Prepare a list of that equipment and collect all relevant information about them. The purchase date, purchase price, carrying value in the balance sheet and accrued depreciation are a few required details.
   
   
2. Choose The Method Of Valuation
   There are two techniques of plant and machinery valuation – the sales comparison approach and the cost approach. 
   
   
   • Sales Comparison Approach:
   By having a sneak peek at the dealer’s listings and auction prices and chatting with the vendors, the ongoing value of the equipment is calculated. All these things help in attempting to get clarity on the possible selling price of the equipment, considering its current condition. However, the only downside to this approach is it wants a more or less active market for making comparisons. This becomes difficult for unique or customized types of machinery.


• Cost Approach:
When applying this approach, appraisers determine the current new replacement cost of the equipment, then make modifications to elucidate for operational, physical and obsolescence of the equipment. For that, they look at the purchase price of the machinery and gain acceptance by the inflation index to see the current price of the same new equipment. Further, obsolescence is adjusted to arrive at its current value.

Judgments of these methods is crucial. If you’re determining the price of equipment that has a relatively active market, you can consider a sales comparison approach. However, if you’re valuing customized or unique machinery, then opt for the cost approach.

Importance of Plant And Machinery Valuation:

1. Aids To Learn Buying Price
   Prior to proposing a bid, prospective buyers need to learn about the current value of plant and machinery. It gives a rough picture of the assets owned by the company. Plus, the valuation price provides insight into the company’s assets before investing in it.
   
   
2. Learn The Selling Price
   Prospect buyers always stay eager to learn the estimated selling price of all the company’s plant and machinery. Typically, the valuation is done based on the equipment’s present condition, manufacturing date and comparing the current sales price.
   
   
3. Weigh Up Company’s Financial Status
   For preparing balance sheets, audits and internal management, plant and machinery valuation is crucial. That way, one learns the financial status of the company, contrary to its competitors.
   
   
4. Determine The Pledge Price
   In today’s times, companies are ought to stay updated with the technology. Otherwise, they’re thrown out of the competition. In that case, financers rope in providing an instant loan for procuring updated machinery. In such cases, they require a collateral value of the old machinery to provide the needed amount of the new machinery.
   

Machinery appraisal is important. Whether you do it on your own or hire a professional, plant and machinery is crucial for many things as listed above. Hopefully, the two-step valuation eases your process and aid you examine equipment appraisals.