Valuation Flashcards
IVS-Defined Basis of Value – Liquidation Value
Liquidation Value is the amount that would be realised when an asset or group of assets are sold on a piecemeal basis. Liquidation Value should take
into account the costs of getting the assets into saleable condition as well as those of the disposal activity. Liquidation Value can be determined under
two different premises of value:
an orderly transaction with a typical marketing period
a forced transaction with a shortened marketing period
What is the red book called
RICS Valuation – Global Standards – January 2020
When did the UK supplement come out
ISSUED 2018 BUT EFFECTIVE JAN 2019 - Both need to be read together and the UK edition does not replace the global Red Book, although some elements may supplement or modify global guidance.)
Purpose of the red book
Provide consistency, objectivity and transparency in valuations
Build public confidence and trust in RICS members’ valuations
Ensure valuers are working to the latest international standards
Provide an essential quality control check without the need for legislation.
what is fair value
Fair value (the definition adopted by the International Accounting Standards Board (IASB) in IFRS 13) is:
‘The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.’
References in IFRS 13 to market participants and a sale make it clear that for most practical purposes the concept of fair value is consistent with that of market value, and so there would ordinarily be no difference between them in terms of the valuation figure reported.
Where used IFRS 13 Fair Value Measurement must also be used.
Why are assets valued for accounting purposes
Assets are listed on company accounts for investment or producing company accounts.
Accounting standards relating to plant & equipment
IAS 16 & FRS 102
Details on IAS 16 - International accounting standards
IAS 16
There are essentially four key areas when accounting for property, plant and equipment that you must ensure that you are familiar with:
initial recognition - the cost depreciation revaluation derecognition (disposals).
FRS 102: Property, plant and equipment under UK GAAP
FRS 102 Section 17 Property, Plant and Equipment sets out the requirements that apply to tangible long-term assets used by an entity for its business operations.
why is liquidation value not used?
While valuers will often be asked to prepare forced sale or liquidation (IVS-defined basis of value – IVS 104 paragraph 80.1) valuations these terms are subject to wide interpretation and will also vary by jurisdiction. Hence, adoption of market value based on regular market assumptions (which must be reasonable) should be the core approach, followed by agreed special assumptions and their related effect on
value.
Special Assumption -
If the valuer considers that this time limit is inadequate for proper marketing, as defined in the conceptual framework for market value, it may require the use of a special assumption in the reporting framework.
However, the valuer should always report the benchmark market value in the first instance,
followed by the commercial advice regarding the likely sale price and wider circumstances.
“An assumption that either assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market
participant in a transaction on the valuation date.”
Assumption -
A supposition taken to be true. It involves facts, conditions or situations affecting the subject of, or approach to, a valuation that, by agreement,
do not need to be verified by the valuer as part of the valuation process.
Typically, an assumption is made where specific investigation by the valuer is not required in order to prove that something is true.
