Plant and Equipment Glossary
We understand that good communication between client and valuer is important. Especially when it comes to a business valuing its assets. So that we can communicate better, the Plant and Equipment Valuation QLD team has put together this glossary of valuation definitions.
You don’t have to be an expert to set your own asset valuation criteria. Whether you know these terms or not, our valuers will always confirm what you hope to achieve with your valuation and what information you want to be included to ensure you get the report you’re after. Of course, for those who like to do some research before they order a service, we hope this plant and equipment glossary will be of great assistance.
As a professional service, we follow the standards and guidelines of several entities. Not only do we follow their standards, but we go by their definitions of valuation terms to maintain consistency among other industry professionals. The definitions included in our glossary have either been written by a member of our team or have been sourced from the Australian Property Institute (API)¹ website, the Glossary of Defined Terms of the Australian Accounting Standards Board (AASB)² or the International Valuation Glossary published by the Royal Institution of Chartered Surveyors (RICS)³. This is not a complete glossary, but we hope what we have provided will give our curious visitors what they need to better understand asset valuations.
Our glossary of terms has been split into three sections below. These are:
- Key P&E Valuation Definitions: You will find these terms sprinkled throughout our website. You are also likely to hear these terms spoken by one of our specialists.
- Definitions of Value: There are many ways to define value. All valuations are created for a purpose and the value determined by an expert should suit the purpose of the valuation. Being familiar with different value definitions will make it easier to order the report you’re looking for.
- General Valuation Terms: Just a few general definitions of valuation terms you may find in your report or while doing your own independent research of the asset valuations.
If you have questions, or if want you to learn more about us, feel free to get in touch with a member of our team.
Key P&E Valuation Definitions
PLANT AND EQUIPMENT
All tangible assets of a business. This encompasses a wide range of assets including appliances, hardware, vehicles, machinery, and property. These tangible assets (also known as fixed assets) are involved in the day-to-day operations of a company and generate income throughout the fiscal year without being sold or consumed.
PLANT AND MACHINERY
An alternative to the term plant and equipment. Some industries may have a preference but both terms have the same definition and are often used interchangeably. (See above for plant and equipment definition).
PROPERTY, PLANT AND EQUIPMENT
Fixed/tangible items used to operate or conduct a business. These items (assets) are expected to be used throughout several financial periods.
VALUER
A qualified professional capable of determining the value of items in an official capacity.
VALUATION
The process of assessing the monetary value of an item as it is on a specific date. The assessment must be based on evidence and be conducted ethically by a qualified and professional valuer.
PROPERTY VALUER
An individual with the correct education and qualifications to value any real estate property, including land and structures.
REGISTERED VALUER
A valuer that has met the criteria to receive a licence from the Valuers Registration Board of Queensland to work as a professional valuer.
VALUERS REGISTRATION BOARD OF QUEENSLAND
A board that has been operating since 1965, to ensure practising valuers in the state of Queensland have all the necessary credentials and experience, are compliant with the Valuation Registration Act 1992 and are of good ethical character.
PLANT AND EQUIPMENT VALUER
A valuer with the training and qualifications to conduct valuations of all tangible assets of a business (plant and equipment)
P&E
An abbreviated version of plant & equipment. Is used by industry professionals including plant and equipment valuers.
PP&E
A well-known and commonly used abbreviation of Property, Plant and Equipment. Is recognised by accountants and other professionals.
P&M
An abbreviation of the term Plant & Machinery. Can often be seen in reference to an API-certified Plant and Machinery Valuer.
AUSTRALIAN PROPERTY INSTITUTE
Australia’s most recognised body for property professionals. They set and maintain the standards of all manner of professionals in the property sector including property valuers and plant and machinery valuers.
API
The official abbreviation of the Australian Property Institute. A recognised organisation creating and maintaining standards for Australia’s property professionals.
CERTIFIED PRACTISING VALUER
A professional valuer that has met the criteria of eligibility set by the API for certification. This establishes that the valuer has received a high education and valuer training as well as gained a substantial amount of experience.
CPV
The abbreviated form of the term Certified Practising Valuer. This is a certification given to qualified valuers as determined by the Australian Property Institute.
CERTIFIED PRACTISING VALUER (PLANT AND MACHINERY)
A credential that is given to eligible plant and machinery valuers. This proves that they are highly trained, educated and experienced to conduct professional plant and equipment valuations.
ROYAL INSTITUTION OF CHARTERED SURVEYORS
An international body recognised for promoting and enforcing high standards for property professionals around the world.
RICS
The official abbreviation of the Royal Institution of Chartered Surveyors. An internationally known body respected for establishing and enforcing standards for professionals in the land, real estate, construction, and infrastructure sectors.
The Many Definitions of Value
MARKET VALUE
An amount estimated on the valuation date for which a liability or asset should be exchanged between a willing buyer and a willing seller during an arm’s length transaction. These parties would be acting without impulse or duress and have agreed on the sale judiciously.
ENTERPRISE VALUE
The total value of the equity in a business plus the value of its debt or debt-related liabilities, minus any cash or cash equivalents available to meet those liabilities. ¹
EQUITY VALUE
The total market value of an enterprise once all debts have been cleared. Unlike enterprise value, this includes cash and cash equivalents.
FAIR MARKET VALUE
The hypothetical price at which property changes hands between a knowledgeably willing buyer and a knowledgeably willing seller within an arm’s length exchange in an unrestricted open market.
FAIR VALUE
An amount determined on the measurement date representing the price of an asset or liability in a market transaction between willing and able participants.
FORCED LIQUIDATION VALUE
A form of Liquidation Value in which an asset or assets are presumed to be sold with less than a reasonable period of market exposure. Contrast with Orderly Liquidation Value. ³
GOING CONCERN VALUE
Value, as determined with the reasonable assumption or expectation that a commercial enterprise will continue to operate in the foreseeable future.
INVESTMENT VALUE
Can be referred to as value to the owner. This is a representation of the value of an asset or business as determined with consideration of the investors’ or prospective investors’ objectives in mind.
LIQUIDATION VALUE
The amount, net of relevant costs (e.g., preparation and disposal), that would be realised if the business is terminated, and the assets are sold. See also Orderly Liquidation Value and Forced Liquidation Value. ³
MARKET RENTAL VALUE
A fair amount for which rent may be charged on a willing and prudent lessee by a willing and able lessor determined by market research.
NET ASSET VALUE
The difference between a business' total assets and liabilities restated at a particular Standard of Value rather than accounting book values. ³
NET BOOK VALUE
The difference between a business' total assets and liabilities at accounting book values (synonymous with book equity). With respect to a specific asset, this is the original capitalised cost less accumulated amortisation, depreciation, depletion, allowances, or impairment. ³
ORDERLY LIQUIDATION VALUE
A form of Liquidation Value in which the asset or assets are presumed to be sold over a reasonable period of market exposure to maximise expected return. Contrast with Forced Liquidation Value. ³
SALVAGE VALUE
The value of an asset at the end of its economic life given the purpose for which the asset was created. The asset may still have value for an alternative use or for recycling. ³
STANDALONE VALUE
The value of an asset, business, or investment estimated without considerations of potential Synergies. ³
SYNERGISTIC VALUE
The expected value resulting from a combination of two or more assets or businesses, which is greater than the sum of the separate individual parts. ³
General Valuation Terms
APPRAISAL
An assessment of value. May be used in place of the term valuation, however, this is more associated with real estate agents when informally estimating the sales price of a property.
ARM’S LENGTH
A transaction on the open market between two unrelated parties who have not been previously affiliated in any capacity.
ASSET
Any resource or item regarded as having value, capable of producing positive economic value to a business or entity.
ASSETS REGISTER
A complete list of assets belonging to a business complete with details intended to assist in their management and maintenance.
BUSINESS
A commercial, industrial, service, or investment entity (or a combination thereof) pursuing an economic activity. ¹
BUSINESS COMBINATION
A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also business combinations as that term is used in this Standard. ²
CAPITALISATION RATE
Commonly referred to as “cap rate”. It is a comparison tool used by investors or prospective investors. Shown as a percentage representing the potential rate of return.
CLASS OF ASSETS
Assets that have been categorised together due to their corresponding use in business operations or nature.
COST
The amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction, or, when applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other Australian Accounting Standards, for example AASB 2 Share-based Payment ²
COST APPROACH
A method of valuation considering all factors to determine the amount needed to be paid for an asset’s replacement either by purchasing its equivalent or its complete reconstruction.
DEPRECIATION
An accounting method for the allocation of the costs of a tangible asset over the duration of its useful life accounting for the reduction in value due to its use, wear and tear, and obsolescence.
DESKTOP ASSESSMENT
A valuation report that has been produced without a physical inspection of the property, basing its assessment of value on available and/or supplied documents and data.
EQUITY
The residual interest in the assets of the entity after deducting all its liabilities. ²
ECONOMIC OBSOLESCENCE
A form of depreciation or loss in value or usefulness of an asset caused by factors external to the asset, especially factors related to changes in demand for products or services produced by the asset. ³
FUNCTIONAL OBSOLESCENCE
A loss of utility resulting from inefficiencies in the subject asset compared to its replacement that results in a loss of value. ¹
GOING CONCERN
An assumption that an enterprise will be able to continue its operations into the next financial year and likely beyond.
GOODWILL
An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised. ²
GROSS RENT
The rental reserved or derived under lease or tenancy arrangement(s) where there is no further obligation on the tenant to pay any other property costs other than tenancy utilities and cleaning. ¹
HIGHEST AND BEST USE
The use of an asset that maximises its potential and that is physically possible, legally permissible and financially feasible. ¹
IMPAIRMENT
The carrying amount of a fixed asset’s loss in value, surpassing what can be considered a recoverable amount.
INCOME APPROACH
A valuation method forming a representation of capital value using the asset’s income stream.
INTANGIBLE ASSET
An asset that lacks physical substance and derives value from the economic properties that grant rights and/or Economic Income to its owner (e.g., patents, copyrights, trademarks, or customer relationships). ³
LEASE
An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. ²
LESSEE
Referred to as a tenant, they are a person named on a lease agreement for renting property owned by another.
LESSOR
The owner of a property being leased to another person/s. Also known as a landlord.
MARKET APPROACH
A method of valuation whereby the asset’s value is formed by comparing sales data of similar or identical assets.
MODERN EQUIVALENT ASSET
An item of the same or similar use or operation of an asset being valued but has been designed or produced using more contemporary techniques and/or methods.
OBSOLESCENCE
The stage an asset has reached when its value has significantly been lost and is no longer desired or considered useful.
RATE OF RETURN
An amount, expressed as a percentage of the amount of the investment, of anticipated or realised Economic Income and/or change in value of an investment. ³
REAL PROPERTY
A specified area of land and its attachments including buildings, improvements, and permanent fixtures.
REPLACEMENT COST
The amount expected to be exchanged for the equivalent of an asset or its recreation.
RENT REVIEW
The periodical reassessment of an asset for the purpose of adjusting its lease agreement.
RETURN ON INVESTMENT
A measurement of the efficiency of an investment weighing its potential earnings against the costs.
TANGIBLE ASSET
An asset that has physical form and derives value from its physical properties or tangible nature (e.g., real estate, property, plant, equipment). Contrast with Intangible Asset. ³
TECHNICAL OBSOLESCENCE
The point at which an asset’s usefulness has been affected by the want or existence of newer, efficient, and more cost-effective technologies despite being in working order and sound condition.
Help from the plant and equipment experts
The world of plant and equipment valuations is vast, and it can be difficult to learn everything on your own. If there is anything you want to clarify, you are more than welcome to speak with one of our experts. For more information about plant and equipment or about our valuation company, contact our team by filling out our contact form or call us on (07) 3088 8036.