How do plant & equipment valuations work?
Businesses can reap many benefits from seeking out a valuation on their machinery, equipment and other key assets. Company owners, investors and stakeholders can leverage a valuation report for insurance and financing applications, strategic planning, mergers, acquisitions and more. Licensed plant and equipment valuers in Queensland calculate the true market value of these assets by compiling and reviewing data on a wide range of factors.
The information required to accurately review plant and equipment (P&E) assets can vary from case to case. It can depend on the purpose of the valuation, as well as the kind of business being valued.
The first step is to develop a comprehensive asset register. In other words, a full list of the assets to be valued.
This will include details such as the asset’s:
- type
- model
- serial number
- age.
The condition of the assets in question is a critical component of the investigation as well. The valuer will assess any wear and tear, damage or necessary maintenance and repairs.
Of course, market conditions are important too. Concepts such as supply and demand and competition can have either positive or negative effects on the final valuation. This is why it’s important to work with a qualified, independent valuer with broad knowledge of the market, economy and industry in which your business operates.
The first step of a P&E valuation
The foremost method of the P&E valuation process is compiling an asset register.
Compiling a list of all the assets to be valued allows a valuer to employ a comprehensive approach. The first step in this is to carry out a physical inspection of the assets. The valuer will need to visit the business premises and review the assets to determine their age, condition and other relevant details.
This will generally involve photographing and measuring the precise dimensions of the full register. These assets could include the likes of vehicles, machinery, and more.
At this point, the valuer will conduct research from multiple sources to gather supplementary information. They will inspect the likes of warranty information, purchase invoices, financial records and maintenance logs. They will then compare all available information on the assets against industry standards and benchmarks to determine their expected useful life.
All of this can be used to develop a depreciation schedule. This illustrates the expected decline in the value of each asset over time.
This information will then be gathered into a program or spreadsheet to organise the data and calculate the value of each asset. This involves exercising due diligence to ensure that all assets are accounted for and valued accurately.
What is the most important part of a valuation?
The factor that most influences the process is the purpose of the valuation. This affects your valuer’s area of focus, the methods used, standards and compliance, as well as the results of the report.
The information in a P&E valuation report could be tailored towards the likes of:
- financial reporting
- insurance
- taxation
- financial or strategic decision-making
- regulatory compliance.
When it comes to Australian financial reporting, valuers and business entities must ensure compliance with the Australian Accounting Standards (AASB). They will also need to adhere to any other financial reporting standards that the business generally does.
Conducting a P&E valuation for insurance purposes takes careful consideration as well. The valuer must ascertain an accurate idea of the cost of replacing or repairing the asset in the Australian market. This involves looking at factors such as the asset’s age and condition.
The Australian Taxation Office (ATO) implements the relevant regulations and guidelines pertaining to tax. The valuer must ensure their methodologies are in line with Australian tax laws.
This only scratches the surface of the extent to which the purpose of a valuation impacts the process. There is a wide range of official bodies with their own sets of standards and regulations that valuers must adhere to depending on the type of valuation.
The benefits of a P&E valuation
Clients across all industries rely on P&E valuation services for their numerous benefits. They are crucial for any business that relies on assets such as machinery, equipment and vehicles.
The first and most obvious benefit of such a service is getting an accurate assessment of all the company’s assets. This can be crucial for financial reporting, taxation, insurance and more.
As a result, company stakeholders and managers can make better, more informed decisions about their business and operations. A valuation can inform all forms of asset management, including buying, selling, leasing or retiring assets. In other words, a valuation will assist key stakeholders in making strategic decisions regarding the use, maintenance and replacement of their assets.
By identifying underutilised or obsolete assets, those that could be retired or sold, a valuer can also improve the client’s cash flow management. This is done by freeing up cash for other investments or operational expenses.
Again, most businesses in Australia are subject to various types of regulation. A P&E valuation will help an organisation to avoid potential penalties or legal issues by ensuring compliance with these regulations.
Many banks or other financial institutions will request a P&E valuation to approve a loan. A valuation report includes all the information needed to help secure financing.
To learn more about how a P&E valuation can help your organisation, reach out to one of our professional valuers today.