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
We → Wealth
pro →Property
com → Commercial
in ( TRICK) → Income Tax
Ex Cu SE ME ( TRICK)
Ex ➔ Excise
Cu ➔ Custom
S ➔ Service
E ➔ 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
Type of Expenditure
1) Taxation
• Taxiation 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
I = SL/(1+i)n-1
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.
1)Straight line method
In this method we assume depreciation in the form of fix amount.
D = C-S/n ➔ LEARN
Where D = Depreciation
S = Scrap value
C = Original cost of construction
n = no. fo 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.
D = 1 -{C/S}1/n ➔ Learn
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