23.10.08

Valuation Machinery & Equipment for Valuation Guide Application

Valuation Guide Application of Indonesia 3
(PPPI 3) Valuation Machinery & Equipment

Introduction: Machinery and equipment generally categorized as tangible property assets. Valuation Requirements For Financial Reporting included in the PPI 1. Guide is Applying this additional information to assist in the application of the Standard Assessment of Indonesia for the assets in the form of machinery and equipment. 

Asset forms of machinery and equipment have special characteristics that vary with the real properties in general, with such an assessment approach that is applied and to be report any different. Machinery and equipment generally can be moved or relocated, and generally experience a greater contraction than the contraction in real property. Machinery and equipment that can have different values, depending on whether the machinery and equipment is assessed as part of a unit or units operating as a unit for the individual are exchanged, in-place (in-situ) or moved (ex-situ).


Scope 
Application of this Guide focuses on the application of the approaches, principles and basic assessment listed in the Standard for the assessment of machinery and equipment. Some Guide Application of the following is also related to the assessment of Machinery and Equipment: 

Valuation No tangible assets 
Personal Property Assessment 
Valuation Business 
Cost Approach To Financial Reporting - (DRC) 

Applying these guidelines apply to the assessment of machinery and equipment in the private sector and public sector.

Definition : Machinery and Equipment. Tangible assets other than "Realty", where; owned assets to be used in a sustainable production, including building a special machine (the machines individuals or group of machines, equipment trade, and development / increase by the tenant), and categories of assets the other kind. 

Tangible assets, where; owned entity to be used in the production or provision of goods or services, for hire to other parties, or for administrative purpose and are expected to be used for more than 1 period. 

Machinery and Equipment category are: factory (Plant), which joined the assets / inherent integral with other assets, and can include special buildings, machinery and equipment; Machine (Machinery) machines individual or group of machines. The engine is a device used to a certain process in connection with the operation of a company or business; Equipment (Equipment) other assets that are used to help the company or business operation. 
  
Market value. Estimation of money on the date of assessment, which can be obtained from the sale and purchase transaction or the results of a property exchange, between the interested buyers with sellers to buy those interested in selling, in a transaction free of ties, the marketing is done feasible, in which the two parties each act on the basis of the understanding that the expense of prudence and without coercion. 

Value in Use (Value in Use). The value of a property owned by the use of certain specific to a particular user and therefore not related to market value. Value in the use of this value is given by the property to certain business entities where the property is part of the agency business without considering the highest and best use of the property or the amount of money that can be obtained on the sale. 

Market value for the Use of Existing (Market Value for the existing Use). Market value of assets based on a continuation of the existing, with the assumption that these assets can be sold on the open market for use of that time, but in accordance with the definition of market value regardless of whether the use of the existing describes the highest and best use of these assets . 

Liquidation value for the use of Return (Place in Liquidation Value in Use): 
Estimated amount of money that will be calculated can be obtained from a property sale and purchase transactions / facilities to stop, in a limited time when sellers are forced to sell and vice versa for the buyer is not forced to buy, with the assumption that all property / facilities will be sold intact to be returned in accordance with their use. 
Values Development Restore (Reinstatement Value). The cost needed to replace, repair or rebuild property to the condition that substantially the same, but not better or more extensive from the new conditions. 

Value Insurance (Insurable Value). Value of property, as stipulated by the conditions stated in the contract or the insurance policy and in the definition of clear and detailed.
Indonesia


Relations with the Accounting Standards : In the International Financial Reporting Standards (IFRS), Property, Machinery and Equipment can be included in the financial report as the company reduced the cost of depreciation, reduced the decline in value (impairment) or as a fair value per revaluation reduced depreciation, reduced the decline in value. Reasonable Value of Machinery and Equipment in Market Value is generally determined by the assessors (IAS 16 and PSAK 16). Asset form of machinery and equipment, along with other fixed assets, is set in IFRS, IAS 2 - Inventories, IAS 17 - Leases, IAS 36 - Impairment of Assets, IFRS 3 - Business combination, and IFRS 5 - Non-Current Assets Held for Sale and Discontinued Operations. 
In the PPI 1 Valuation To Financial Reporting described the assessment and reporting of assessments that are required according to IFRS rules or PSAK related to the matters described above. 
Approach to the assessment and assumptions that can be used for an assessment of machinery and equipment for the purpose of financial reporting can vary with the assessment for other purposes. Differences should be declared if the values for a different destination reported. The assumption that the assessment may be different in accordance with the IFRS, it is important for assessors to be familiar with the basic requirements of relevant standards, and discuss it with the assumption before the client.

Implementation Guidelines : Machinery and Equipment assessment can be made using one or more of the following approaches: Approach Market Data, cost approach, income approach 
For the purpose of various assessments, including to meet IFRS, the basic assessment that is most often used Market Value. However, the market value of a set that the exchange / sale and purchase transactions is assumed to take place in a transaction free of ties (arm's-length transaction) between the seller and buyers who are interested and have an adequate understanding, regardless of the reason for the sale or other specific conditions that can be affect the assessment process. 
In the assessment of machinery and equipment, assessors must be raised and that additional assumptions when needed, with not ignore the characteristics of assets and the purpose of the assessment. 
These assumptions can include the condition of business machinery and equipment which are currently used, or related components separate / individual, which joined with other assets. 
Examples of assumptions that are suitable for different conditions, or to a different destination can include: Machinery and equipment assessed as one unit, in place (in-situ/in place) and part of the business of running; machinery and equipment in place votes (in -situ/in place) but with the assumption that the business terminated; or 

Machinery and equipment assessed as a separate component to be moved from current location. For public sector assets, the assumption is equivalent to running a business that is in the public sector asset that can continue to be used as facilities / services of adequate public. Assumptions mentioned above have not covered all matters that may be needed in the assessment. Machinery and equipment generally can be moved and have different characteristics, the application of Market Value require the assumption that according to clarify the status and condition of assets offered in the market. Assumptions that should be taken discussed with the assignor and be included in the assessment report. 

Often required to make the assumption that more than one, for example, to describe the impact from the termination of an operating business in the Market Value Machinery and Equipment, where the termination is uncertain. 

In the assessment of machinery and equipment should be considered approach to estimation Market Value and determine the most appropriate approach to use. Market Data approach produces a value estimate, through the comparison process transactions Machinery and Equipment of comparable, from the previously set price / offer or the actual selling price / transaction. Cost estimation approach with the cost of Machinery and Equipment the other is a replica or substitution of machinery and equipment and have assessed the usefulness and quality comparable. For machinery and equipment used, the cost estimate, taking into account depreciation of the results of the analysis in accordance with the predominance in the market or in assessment practices. 

Income approach to consider the income and costs associated with the Machinery and Equipment and estimation assessed value through the process of capitalization. The cost approach has two possible implementation, the first that can be used in the estimation of market value and the second estimate, the value addition to market value. The cost approach is applied to the estimation of market value, construction costs and depreciation should be determined by the results of the analysis of the estimated construction cost and depreciation in accordance with the predominance in the market or in assessment practices. Reproduction of the cost / replacement, is a New cost estimates for reproductive / replacement of a new property is assessed, based on market prices on the local assessment. Reproduction of the cost / replacement, New can be calculated by considering the costs spent for the procurement of a property includes the cost of planning and supervision, the unit cost of procurement or materials, the cost of the foundation, the cost of construction or installation, including all expenses associated with the standard of transportation, insurance, duties, taxes, interest and costs during the construction period, but not including the cost of delays due to time and overtime costs. Depreciation for machinery and equipment that have been used include the depreciation of physical, functional obsolescence / technical and economic obsolescence, if any. The new cost estimates are not likely to exceed the price paid for the property may be assessed, can involve estimation for the depreciation of machinery and equipment used and / or have functional obsolescence / technical. 

The main criteria for the assessment of machinery and equipment is usefulness; usefulness machinery and equipment is usually measured by production capacity, which is a function of quantity and quality of production that will be generated from the machinery and equipment. 
External factors such as economic, environmental, social and political, can cause a decline in the performance of the assets for a period that can not be determined. Uncertainty will cause changes in functionality, both in terms of capacity or efficiency. In such situations need to evaluate the hope the market will ever / end this situation. 
Market Value estimation engine & equipment can be determined with estimation depreciation which includes depreciation of physical, functional obsolescence / technical and economic obsolescence, if any. 
  The cost approach is applied to estimate the value addition in the market value of the property special, can be scorer replacement cost method DRC. 
Basic assessment of market value, other than that used in the form of assets Machinery and Equipment is in the use of the Value (Value in Use), Market Value for the Use of Existing (Market Value for the existing Use), for the use of the Liquidation Value Back (In Liquidation Value Place in Use), Values Development Restore (Reinstatement Value) and Value Insurance (Insurable Value). (See SPI 2) 

Other factors that can affect the market value of machinery and equipment, among others; cost installation and operation of preparation (commissioning) Machinery and Equipment when considered in-situ; When the votes for the move, need to be calculated the cost of demolition. For special interests, can be scorer asked to calculate the cost of removal, the possibility of re-installation costs elsewhere, the cost of insurance and the parties which will bear these costs. In some cases, these costs amounted big scorer therefore need to get approval from the assignor on the assumption that the cost of the components. Factors such as the limited sources of raw materials, which limited the age of the building or the use of land and buildings that are limited from a factory, and government restrictions or environmental impact can have a big influence on the value of machinery and equipment. These factors should be considered by the assessors and assumptions that needed to be made. Part of the machinery and equipment used for production can be classified as a special property, due to the uniqueness of that comes from the special nature and design, configuration or other things, and rarely sold in the market, except as part of a unit or units operating activities of business / agency business where the property is a part of. For part of the machinery and equipment that are commonly used in industry or who have a distinctive function, can be classified as property, although no specific stand on its own. 
Machinery and equipment that can stand on its own increase / decrease in value as a functional coupled with economic or other assets, or may have additional value or value because of the attraction Special to buyers with special interests. 
Some machinery and equipment is a supply of equipment or system of a building that will be affected by any exchange of ownership of the real estate. For example, is the installation of electricity, gas installation, heating, cooling or ventilation, equipment such as elevators. 

Although the value of the components are generally reflected in the value of real estate ownership, but for a specific purpose, such as the depreciation in accounting, can only components are assessed separately. In this case, the assessors should provide an explanation that the assessment and treatment separately from the components will affect the value of real estate ownership. 
When involved in other assessors to conduct assessments on the form of real estate assets, machinery and equipment in the same location, it needs to be done to avoid the Coordination of the overlooked or considered a double. 

No tangible assets are outside the definition of machinery and equipment. However, no tangible assets, can affect the value of machinery and equipment; as an example of the value of the mold (and patterns DIES) often can not be separated by intellectual property rights. 
In this case, the assessors need to define what the appropriate assumptions to be used, relating to the availability of tangible assets, not before making an assessment. 
Software operations, technical data, records and production is a patent example of the tangible assets that can not affect the value of machinery and equipment, depending on whether the assets are not included in the sale and purchase transactions. 
A component of Machinery and Equipment may be included in a financing agreement, such as rental finance (finance lease). In this case, the assets can not be sold without first paid off all obligations to the lender or our rented in accordance with agreements made. Total liabilities can be greater / less than the value of the components without bond. 

Machinery and equipment components that are bound to rent in the financial (finance lease) must be separate from the identification of other assets that are not bound by the agreement, and the value reported separately, as long as the assignor to provide information on machinery and equipment rental, which is tied in finance. 
Components of Machine Tools and bound in rent 
operations (operating lease) or a property owned by third parties should be issued in the assessment because the benefits of ownership can not be moved, along the assignor to provide information on machinery and equipment, which tied in the operational or rent a property owned by third parties. 
In accordance with the SPI 3 Reporting Assessment, an assessment machinery and equipment should be clearly stated goal of the assessment, the date of assessment, the basic assessment, definition, and assumptions or restrictions that apply. Object assessment of machinery and equipment include the name of machinery / equipment, brand, type / model, capacity, specifications of other important, the external factors include, among other conditions utilities, availability of raw materials, changes in economic conditions / industry, laws and regulations that apply, and the social environment, if any. Market value does not reflect a particular method of sales, for example, through private treaty, tender, auction, etc.. Conceptual framework in the SPI 1 (Market Value Basis For valuation) explains that the market value of a sale can be done in the marketing feasible. In the implicit definition implied that the sale of these methods can yield the highest price of an asset or group of assets in a particular condition. Vendors who are interested in selling and have a good understanding will not choose a method of sales that do not generate the highest price. 

However, when buying and selling transactions take place under conditions that do not use the optimal method of sale, then the results are not expected market value, unless the limitations faced by the seller is happening on all sales due to market conditions at that time. A limitation, especially for certain assets and the seller, because of a requirement that must be sold in accordance with an agreement, resulting in a condition that forced sales. 
Machinery and equipment assets more often to be sold on the force of real estate. For example, assets, machinery and equipment sometimes must be sold in a limited time so it can not meet the time period of adequate marketing, as the owner of the assets must be clear or land and buildings which they live. If the condition is estimated to have occurred or will occur, to assess the need to provide advice on the price that can be anticipated, or that can be accepted, although this is set before the assessors need to know the actual conditions required for the seller, and understand the consequences for the seller if not successfully sell assets in the short term time. 
For example, assets may be associated with a fine or penalty covenants. Might be considered an alternative to other sales, for example, how the cost and move to location other assets for sale. 
Without adequate knowledge or conditions that can be anticipated, assessors can not give a precise opinion that the results of the transaction do not meet market value. Therefore assumptions about the transaction in the event of a forced sale conditions should be carefully considered and clearly defined.

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