Friday 27 November 2015

VALUATION


Valuation is done for what and for whom? When is it done?
The valuation exercise is ordered by individual owner, by companies or firms, by Government department, organisations, institutes etc. Valuation is an excellent tool in the hands of managing authorities to determine, from time to time or at a given specific time, the value of a specific asset owned by them. Again this value is determined in relation to particular/Specific purpose and is done in context of particular time period. Therefore the valuation exercise is described as an exercise which is time frame related and purpose oriented.
Is valuation different from Costing & Pricing?
Valuation is quite different from pricing or costing, because value is an assessed worth of an asset (expressed in prevailing monetary terms) in context of a specific purpose and particular time period. This purpose determines the variety of factors that influence an asset’s value and since number of these factors stem directly from a given state of economy prevailing at “that time” the valuation becomes purpose oriented and time frame related exercise. Pricing or costing is qualitatively different. First of all, costing to a great extent is an exact science where costs, processing, labour, administrating, marketing, promotion etc. are fairly well defined and methods of calculating are generally well known and accepted.  Whereas in valuation the determination of assets’ worth in relation to given need and at given period of time are exercises which only a prudent, experienced and well exposed expert valuer can undertake.
What is Fair Market Value?
In fair market value the market forces play a predominant role.  In Market there are alternative options available to both buyers and sellers. In such a situation, if there are no overriding reasons to force any decision for a buyer to buy (from particular seller) or for a seller to sale (to a specific buyer at a given price) where buying / selling both acts are not influenced by any uncommon market conditions such as hyper inflation or undue, uncommon depression, then the value at which an exchange takes place is termed to be a ‘Fair Market Value’.
What is Time Related Value?
Conditions in a given market or general economic conditions are normally subject to variety of changes. At times, these changes are volatile. The flux of ups and downs is constant. But, during a given period of time the changes go through a sort of pattern (either up or down). These patterns for that period of time are termed as ‘market trends’. But, when changes become volatile they become unpredictable. The valuer, when he is called upon to determine the worth of a given asset at a given period time (such as the value of a farm land as on 30th April 2004 or some such date) has to know the market for land prices trend of that region, during that period of time. This is one simplified example of ‘Time Related Value’!
What is meant by value added services?  How does one add value to service?
An Appraiser – Valuer who has performed the required valuation exercise and determined the worth of specific assets, when he offers to perform more services, genesis of which is his basic valuation skills, then these become value added services. This simply means that a valuer, because of the expertise that he possesses as valuer is in a position to offer further service directly linked to his valuation expertise/exercise.
Can there be valuation of liability?

Valuation exercise is normally undertaken for asset values only. As far as the assessment of a liability is concerned, it is the present that will only suffer by paying for it. But there is a term ‘Consequential Damage’ included in larger calculation of liability which is predicting future results from certain present acts, happening etc. If one is called upon to assess this likely liability, it may be termed to be valuation of liability. But, normally the valuation exercise is concerned with valuation of assets only.

More,

No comments:

Post a Comment