Appraiser: space, opportunity and life

Age of Assets or Property

November 26, 2010 | In: appraisal appraiser, property

Depreciation of asset depending on the remaining useful life when compared with modern equivalent assets.  Remaining life of an asset depends on physical factors or economic factors, or a combination of both.

Physical age is the length of an asset can be used for any purpose, by ignoring the possibility to create a new return or do reconstruction.

Useful life is the length of an entity can use the asset in accordance with the plan. Valuer will use the remaining life of the lesser of the age of physical or economic life, if there is a difference. Age pattern of assets and depreciation over the life of the asset is determined by appraiser as part of the assessment with the DRC method is not always the same criteria as determined by the entity for purposes of depreciation in the financial statements, for example, the estimated useful lives or the life of future economic benefits, or in the public sector as a period of service and reduced service.

In determining the remaining life of assets, the valuer can make assumptions based on maintenance and repairs are done routinely. Assessors must not extend the life of an asset by creating a new return or replacement of components that are significant. For some classes of assets, depreciation patterns that are commonly used can be applied based on the estimated useful life of assets, though the value will still reflect the remaining life of the valuation date.

In this case, the percentage depreciation of the replacement cost of modern equivalent assets at the valuation date can be estimated by using the straight-line, reducing balance.

Valuer needs to conduct discussions with the assignor of how the entity determines depreciation in the financial statements and the possibility of differences with the approach used Valuer. There are some techniques / patterns of calculating depreciation where the Valuer is expected to reflect these conditions in determining depreciation. In making adjustments to depreciation and obsolescence, Appraiser should remain based on the knowledge professional, consideration, market knowledge, understanding the nature and type of use of assets where the assets are located.

Calculation of depreciation using the straight-line depreciation method is commonly used as a technique of calculation of depreciation on buildings, because this technique is relatively easy to apply. Depreciation with straight-line technique assumes a similar magnitude, which is allocated as depreciation per year over the estimated useful life.

Lack of straight-line technique: use simple assumptions, where the decline in value every year uniform. Yet when compared with a replacement value of similar assets, the results are not necessarily the same. The assumption is taken only correct on two points over the duration of benefits, namely at the beginning and end. It is a coincidence, if a large depreciation with straight-line technique in accordance with the depreciation is actually happening at the time of valuation. Thus to know the large depreciation that could be done valuation of assets periodically.

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