VALUATION

• Valuation is the art of determining the fair price of a property/building.

• Cost means original construction price of a building but value may increase of

decrease w.r.t time

Purpose of valuation

Taxation

1)Direct Tax

Wealth, Property, Commercial , income Tax

Excise

 Custom

 Service 

 Entertainment

Rent Fixation

• Generally 6-10% of total value of a property is considered as Annual Rent of

the building.

• Valuation is also req. for long, mortage, & for the many future planning like LIC

Policy.

• Gross Income ➔ 

Net Income+Expenditure

Types of Expenditure

1) Taxation

It is about 14%

2). Repairness 

• This expenditure is about 10-15% of the gross income.

• It is spent of the repairness of the bounding libs white whishing, crack filling

etc.

3). Management & Collection charge

• It is about 5-10% of total gross income.

• It is used for the management of a society/home like as electricity bill,

watchmen etc.

Scrap Value

• It is taken as about 10% of the total value of a property after its utility period

(guarantee period)

• It is the value of dismantle material

• The cost of dismantling & removal of rubbish material is deducted from total

receipt obtain from sale of usable material.

Salvage Value

• It is the value at the end of utility period without being dismantled.

• The cost of dismantling & removal of rubbish material is not deducted from the

total receipt

Note :- 1). Salvage value & Scrap value may be positive, negative & zero. 

2). For the RCC structure, scrap value & salvage value are always negligible.

Sinking fund:-

Where, 

S= Total Sinking Fund

L = Annual installment of sinking fund

i = Rate of Compound interest

n = no.of utility period

Market value

It is the value of a property if it is put in open market for auction 

Book Value

• Book value decreases year to year gradually.

• It depends upon life period of the building property & its depreciation amount.

• After the end of utility period, book value is equal to the scrap value.

Book value = value of the property upto that year Depreciation allowed for that year

Depreciation

It is the gradual reduction in the price of a property/building.

Due to obsolescence, design change etc.

Following are the method for the calculation of depreciation.

 line method

In this method we assume depreciation in the form of fix amount.

D = C-S/n 

Where 

 D= Depreciation 

S = Scrap value

C = Original cost of construction 

n = no. of utility period

Book value after N year = C - (NxD) 

2). Constant Percentage Method

• This method is also called Balancing Decline method.

• In this method, we assume that the depreciation is taken as fix percentage