DRC Method Flashcards
What is the DRC method also known as?
Contractors method.
What section of the Red Book is relevant to DRC?
Guidance Note 2019- Depreciated replacement cost method of valuation for financial reporting.
When the DRC method should be used?
Where direct market evidence is very limited or unavailable for specialised properties.
What could specialised properties include?
Sewerage works
Lighthouses
Oil refineries
Docks
Schools
Submarine base
What can DRC valuations be used for?
Owner occupied property.
Accounts purposes for specialised properties.
Rating valuations of specialist properties.
What is the methodology for a DRC valuation?
- Value of land in existing use (assume planning permission exists).
- Add current cost of replacing building plus fees, less a discount for depreciation and obsolescence.
USE BCIS THEN JUDGE LEVEL OF OBSOLESCENCE
What is physical depreciation?
Result of wear and tear over years.
What is functional depreciation?
Where design/specification of asset no longer fulfils function originally designed.
What is external depreciation?
Due to changing market conditions for use of asset.
Can DRC be used for Red Book compliant valuations for secured lending purposes?
NO - valuation for financial statement only.
What should be stated when reporting a DRC valuation?
MV for any alternative use if higher
If appropriate, a statement that the MV on cessation of the business would be materially lower.
A statement that it is subject to the adequate profitability of the business/continued occupation and use.
The cost of the Modern Equivalent is depreciated under 3 headings?
Physical Depreciation
Functional Depreciation
External Depreciation
