In the previous two editions, I have covered the methodologies for the valuation of building and plant & machinery. In this edition, I would like to cover the methodologies for the valuation of other assets such as FFF, leasehold improvements, office equipment, computers & their accessories etc.

The different methods are as follows: –

Item by item method: Under this methodology, all the items are physically verified along with their technical specifications after co-relation with the fixed asset register and thereafter replacement value is worked out by taking present replacement costs after making market inquiries and obtaining offers/quotation from the respective suppliers.

Adjustments such as discounts, negotiations, improvements are to be made whilst working out the valuation of assets such as FFF, leasehold improvements, office equipment, computers & their accessories etc.

This is one of the best & most accurate methods with the following limitations: –

• Required details such as exact specifications of each & every machine/item are not available.
• Time consuming & Expensive method
• Element of assumption for discounts/negotiations, which may vary based on different factors.
• Not applicable for very old machines outdated from the market.

Escalation Method: As explained in the earlier editions, under this method the original costs are considered, and replacement cost is worked out after applying suitable indexation on the original cost. The only precaution one has to take is to remove onetime pre-operative/onetime expenses whilst working out original cost.

Escalation factor is applied based on the type of material used (wood or Stainless steel or aluminum, cast Iron, any other material). Marshall and shift index has been used for imported items along with required adjustments for custom duty, prevailing exchange rate at the time of valuation etc.

Valuation by escalation method reflects nearly correct basis and also is an internationally accepted norm.

As such there is no escalation in the prices of certain office equipment, computers & accessories. In-fact the prices of the same has gone down even after improvement in the specifications. Most of these old items are no longer in the market. Therefore, specific adjustments on account of de-escalations are made to work out the valuation of these items.

In the last, I would like to mention that no valuation exercise can give us the exact replacement cost of the item /machinery/asset. Our effort is only to obtain a nearly correct value for the replacement cost.

As a surveyor, we are interested in the fact that the insured should consciously re-value their assets to take care of inflation. There may be variation in the valuation between the working of the surveyors and that of the insured but as long as the insured has consciously decided to revalue the asset, any minor variation in the valuation by any method should be ignored.