The method of valuation, on the other hand, is determined by the approach the valuer uses to reach his or her opinion on whatever basis they have adopted. All valuations adopt either a market approach, a cost approach, or an income approach (or a combination of these approaches).

So, when we receive instruction, the first thing to be determined is what is to be valued (i.e. the subject matter and the interest) and who the client is. Then we need to know the purpose of valuation, so that we can advise as to the correct basis of valuation (we also need to know where the assets are located and when they need to be valued, i.e. the date of valuation). I call the ascertaining of this information at the outset the ‘who, what, why, where and when’ rule.

 1)  The comparison method (i.e. analysing historical market transactions) which is a ‘market approach

2)  The Depreciated Replacement Cost – (Depreciating the new replacement price/cost of the machine by estimating its age, economic life, and residual value, to opine on its current value).

3)  A combination of the above two approaches (which is often my favoured approach), i.e. a DRC framed concerning market evidence.

 Plant & Machinery valuations generally adopt one of these methods, however, the comparison method can also be stretched to include speaking with dealers for anecdotal market evidence/opinions and considering asking prices for similar assets.