Valuation
is done for what and for whom? When is it done?
The valuation exercise
is ordered by individual owner, by companies or firms, by Government
department, organisations, institutes etc. Valuation is an excellent tool in the
hands of managing authorities to determine, from time to time or at a given
specific time, the value of a specific asset owned by them. Again this value is
determined in relation to particular/Specific purpose and is done in context of
particular time period. Therefore the valuation exercise is described as an
exercise which is time frame related and purpose oriented.
Is valuation different
from Costing & Pricing?
Valuation is quite
different from pricing or costing, because value is an assessed worth of an
asset (expressed in prevailing monetary terms) in context of a specific purpose
and particular time period. This purpose determines the variety of factors that
influence an asset’s value and since number of these factors stem directly from
a given state of economy prevailing at “that time” the valuation becomes
purpose oriented and time frame related exercise. Pricing or costing is
qualitatively different. First of all, costing to a great extent is an exact
science where costs, processing, labour, administrating, marketing, promotion
etc. are fairly well defined and methods of calculating are generally well
known and accepted. Whereas in valuation
the determination of assets’ worth in relation to given need and at given
period of time are exercises which only a prudent, experienced and well exposed
expert valuer can undertake.
What is Fair Market
Value?
In fair market value the
market forces play a predominant role.
In Market there are alternative options available to both buyers and sellers.
In such a situation, if there are no overriding reasons to force any decision
for a buyer to buy (from particular seller) or for a seller to sale (to a
specific buyer at a given price) where buying / selling both acts are not
influenced by any uncommon market conditions such as hyper inflation or undue,
uncommon depression, then the value at which an exchange takes place is termed
to be a ‘Fair Market Value’.
What is Time Related Value?
Conditions in a given
market or general economic conditions are normally subject to variety of
changes. At times, these changes are volatile. The flux of ups and downs is
constant. But, during a given period of time the changes go through a sort of
pattern (either up or down). These patterns for that period of time are termed
as ‘market trends’. But, when changes become volatile they become
unpredictable. The valuer, when he is called upon to determine the worth of a
given asset at a given period time (such as the value of a farm land as on 30th
April 2004 or some such date) has to know the market for land prices trend of
that region, during that period of time. This is one simplified example of
‘Time Related Value’!
What is meant by value
added services? How does one add value
to service?
An Appraiser
– Valuer who has performed the required valuation exercise and determined the
worth of specific assets, when he offers to perform more services, genesis of
which is his basic valuation skills, then these become value added services.
This simply means that a valuer, because of the expertise that he possesses as
valuer is in a position to offer further service directly linked to his
valuation expertise/exercise.
Can there
be valuation of liability?
Valuation exercise is normally undertaken for asset values only. As far as the assessment
of a liability is concerned, it is the present that will only suffer by paying
for it. But there is a term ‘Consequential Damage’ included in larger
calculation of liability which is predicting future results from certain
present acts, happening etc. If one is called upon to assess this likely
liability, it may be termed to be valuation of liability. But, normally the
valuation exercise is concerned with valuation of assets only.
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