SUMMARY OF IVS 300 PLANT AND EQUIPMENT VALUATION GUIDANCE IN ACCORDANCE WITH IVS 2017
The latest Valuation Standard as issued by International Valuation Standards Council is the International Valuation Standards (IVS) 2017 Effective from 1 July 2017.
The International Valuation Standards (IVS) 2017 contains the IVS Framework, the IVS General Standards and the IVS Asset Standards approved by the IVSC Standards Board on 15 December 2016, with an effective date of 1 July 2017.
IVS Framework comprises Compliance with Standards, Assets and Liabilities, Valuer, Objectivity, Competence and Departures
IVS General Standards comprises IVS 101 to IVS 105, while IVS Asset Standards comprises IVS 200 to 500.
The focus of this summary is IVS 300 Plant and Equipment as contained in the International Valuation Standards (IVS) 2017
IVS 300 Plant and Equipment
This section in the Valuation standard opens with Overview, Introduction, Bases of Value, Valuation Approaches and Methods, Special Considerations for Plant and Equipment and Financing Arrangements
IVS 300 Plant and Equipment applies to valuations of plant and equipment only. Hence when carrying out any valuation on Plant and Equipment, there must be reference to IVS 300 Plant and Equipment.
Paragraph 20 under IVS 300 Plant and Equipment explains clearly that Plant and Equipment are tangible assets only that can be touched and felt. Intangible assets fall outside the classification of plant and equipment assets.
Paragraph 20.5 unambiguously states that all plant and equipment valuers should normally inspect the subject assets to ascertain the condition of the plant and also to determine if the information provided to them is usable and related to the subject assets being valued. No matter where the asset is located even if in Borno State, Nigeria, the asset must be inspected, as determination of value is premised on so many factors which can only be observed during inspection
Paragraph 20.8 clarifies on why some plant and equipment assets that are part of the building should not be considered separately as asset. Such items will normally form part of the real property interest. Examples include plant and equipment with the primary function of supplying electricity, gas, heating, cooling or ventilation to a building and equipment such as elevators
Paragraph 30 centers on Bases of Value. There are various valuation basis as detailed in IVS 104 Bases of Value, sections 140-170 of the International Valuation Standards (IVS) 2017. Value of the asset is dependent on the basis adopted
Valuation Approaches and Methods are clearly discussed under Paragraph 40. There are 3 main approaches to all valuations in line with IVS, which are Market Approach, Income Approach and Cost approach
IVS 300 Plant and Equipment closes with Financing Arrangements, which is more of an advice to valuers to do more due diligence and investigation. There are certain plant and equipment assets that may be subject to a leasing or financing arrangement. Accordingly, the asset cannot be sold without the lender or lessor being paid any balance outstanding under the financing arrangement. The caution to valuers is to ask the client who owns the property before doing the valuation, as Items of plant and equipment that are subject to operating leases are the
property of third parties and are therefore not included in a valuation of the assets of the lessee.
In conclusion, valuers should ask whether assets are subject to operating lease, finance lease or loan, or other secured lending.