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EHAPC > PE Valuation - Specific Purposes > Flashcards

PE Valuation - Specific Purposes Flashcards

1
Q

Where in the Red Book Global would you specifically find out about specific purpose valuations?

A

VPGAs

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2
Q

Are the VPGAs mandatory?

A

No - advisory only

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3
Q

What does VPGA 1 relate to?

A

Financial statements

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4
Q

Why do financial statement valuations require particular care?

A

They must comply strictly with the financial reporting statements adopted by the entity

They may be relied upon by third parties

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5
Q

What are the two commonly used financial reporting standards used in the UK?

A

IFRS
UK GAAP

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6
Q

Does does IFRS stand for?

A

International Financial Reporting Standards

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7
Q

What does UK GAAP stand for?

A

UK Generally Accepted Accounting Principles

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8
Q

What type of comapny generally must adopt IFRS as their financial reporting standard?

A

Public listed companies

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9
Q

Under FRS - what basis of valuation should be adopted?

A

Fair value

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10
Q

What financial reporting standard do UK non-listed companies generally comply with?

A

UK GAAP (FRS 100-103 or FRSSE 2015)

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11
Q

What RICS guidance relates to financial statement valuations in the UK (2019 UK Red Book)?

A

UK VPS 3

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12
Q

When was UK GAAP last updated?

A

1 Jan 2015

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13
Q

What are the bases of value under UK GAAP FRS 102?

A

Fair value (revaluation model)
Historic cost (cost model)

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14
Q

When would you use the historic cost (cost model) basis of value?

A

Where market evidence is not available

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15
Q

What does SOPR stand for?

A

Statements of recommended practice

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16
Q

What is a SORP?

A

Sector driven recommenations on accounting practices for specialised industries or sectors, e.g. may specify basis of value

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17
Q

When is existing use value used as a basis of value?

A

When valuing operational property, plant and equipment for local authorities and assets for central government financial statements

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18
Q

What basis of value would be adopted for non-operational surplus relating to local authority assets or central government financial statements?

A

Fair value

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19
Q

What is the definition of Existing Use Value (EUV)?

A

The estimated amount for which a property should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the asset required by the business, and disregarding potential alternative uses and any other characteristics of the asset that would cause its market value to differ from that needed to replace the remaining service potential at least cost.

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20
Q

In a financial statement valuation (under FRS 102), should you include directly attributable acquisition or disposal costs in your valuation?

A

No - if requested by the client, they should be stated separately

21
Q

What does VPGA 2 relate to?

A

Secured Lending

22
Q

What additional criteria apply to secured lending valuations?

A

That the valuer has had no previous, current or anticipated involvement with the borrower, or prospective borrower, the asset to be valued or any other party connected with a transaction for which the lending is required (for 24 months, or longer if requested)

23
Q

What information should you specifically request for a secured lending valuation?

A

Intended lender (if you are instructed by a prospective borrower or broker)

Further information on marketing, incentives and circumstances of any transaction relating to the subject

Terms of the lending facility

Any recent transactions/price agreed on the subject property

24
Q

What is the most widely used basis of value for secured lending valuations?

A

Market value

25
Q

What would be typical special assumptions for a secured lending valuation?

A

Planning consent has been granted for development at the property

Physical change to the property, such as new construction or refurbishment

New letting on given terms, or the settlement of a rent review at a specific rent, has been completed

Special purchaser, which may include the borrower

Constraint that could prevent the property being either brought or adequately exposed to the market is to be ignored

New economic or environmental designation has taken effect

Property suffers from natural, non-natural or existing use environmental constraints

Unusual volatility in the market as at the valuation date is to be discounted

Any lease or leases between connected parties has been disregarded

26
Q

What does UK VPGA 1 (2019 UK Red Book) relate to?

A

Valuation for financial reporting: general matters

27
Q

What does UK VPGA 11 (2019 UK Red Book) relate to?

A

Valuations for residential mortgage purposes

28
Q

What basis of value is adopted for valuations of residential property for the purpose of possible possession proceedings or the proposed sale of a repossessed property?

A

Projected Market Value (PMV) - the estimated amount for which an asset is expected to exchange at a date, after the valuation date and specified by the valuer, between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion subject to 2 special assumptions.

29
Q

What are the 2 special assumptions under PMV?

A

During the marketing period the property has been unoccupied and all furnishings and fittings have been removed

The vendor (mortgagee) has to sell the property within a reasonable period to recover the secured debt

30
Q

What does a RICS Home Survey include?

A

Inspection
Concise report based on inspection
Valuation

31
Q

What does VPGA 9 relate to?

A

Identification of portfolios, collections and groups of properties

32
Q

What is the general principle when dealing with a portfolio valuation?

A

The valuation purpose and your client’s instructions will dictate the approach you take to lotting

33
Q

What does VPGA 10 relate to?

A

Matters that may give rise to material valuation uncertainty

34
Q

How should you deal with material uncertainty?

A

In qualitative terms indicating your confidence in your valuation opinion

35
Q

What does UK VPGA 2 (2019 UK Red Book) relate to?

A

Other regulated purposes

36
Q

What would require a regulated purpose valuation?

A

Inclusion in financial statements
Inclusion in prospectuses and circulars issued by UK companies
In connection with takeovers and mergers
For collective investment schemes
For unregulated property unit trusts

37
Q

Can you provide a regulated purpose valuation of a property acquired by your client in the last 12 months or where you or your firm received an introductory fee or agreed the purchase?

A

Only if another unrelated firm has valued the property since the transaction was agreed

38
Q

What additional disclosures must you make in a regulated purpose valuation?

A

In relation to the firm’s preceding financial year the proportion of the total fees, if any, payable by the client to the total fee income of the valuer’s firm expressed as either less than 5%, or if more than 5%, an indication of the proportion within a range of 5 percentage points

If since the end of the last financial year, it is anticipated that there will be a material increase in the proportion of the fees payable, or likely to be payable by the client

39
Q

What does UK VPGA 15 (2019 UK Red Book) relate to?

A

Valuations for capital gains tax, inheritance tax, stamp duty land tax and tax on enveloped dwellings

40
Q

What is the basis of value for CGT, IHT and SDLT valuations?

A

Statutory definition of market value

41
Q

What is the statutory basis of market value (defined in the relevant tax legislation)?

A

Price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time

42
Q

What else applies to the statutory definition of market value?

A

Case law, which established a number of additional assumptions

43
Q

Does RICS provide any guidance on sustainability and valuation?

A

Yes - for both residential and commercial property

44
Q

What is the general principle of reflecting sustainability in valuations?

A

Reflect, don’t lead markets

45
Q

What sustainability issues could you reflect in your advice?

A

Green design features
Life cycle materials
Embodied carbon
Energy efficiency
Waste management
Location
Accessibility

46
Q

How could you compare the value of a sustainable vs. non-sustainable building?

A

DCF

47
Q

What is the standard rate of IHT?

A

40%

48
Q

How long do you have to survive a gift for IHT not to be payable?

A

7 years

EHAPC (41 decks)

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