Victorian Statutory Revaluation
Valuer-General Victoria and Municipal Group of Valuers
Guidelines on Valuation Methodology for
Plant and Equipment
Introduction
These guidelines are to be used when assessing plant and equipment for rating and taxation
purposes.
Plant and equipment assets have particular characteristics that distinguish them from other
types of real property. Those characteristics are important when determining if the plant is a
fixture or a chattel. If the plant and equipment is found to be a fixture it forms part of the
land and should be included in the rateable assessment.
A fixture refers to an object that is permanently or indefinitely fixed to the real property and
intended to be part of the property. In this context, a fixture is then included in the rateable
assessment.
These guidelines need to be used in conjunction with the General Provisions Specialist
Guidelines, which refer to the general requirements, legislation and procedures relating to all
statutory valuations.
Definition
Plant – Assets that are inextricably combined with others and that may include specialised
buildings, machinery, and equipment.1
Machinery – Individual machines or a collection of machines. A machine is an apparatus
used for a specific process in connection with the operation of the entity. 2
Equipment – Other assets that are used to assist the operation of the enterprise or entity. 3
1
International Valuation Standards Council, 2007, International Valuation Guidance Notes, 6.3: Valuation Plant &
Equipment, http://www.api.org.au/menuitem/professional-and-technical-standards/valuation-property-standards,
p.17
2
ibid. p.17
3
ibid.
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Victorian Statutory Revaluation
Other definitions and industry terms
Fixtures
Fixtures are items attached to land in such a way that they become, in law, part of the land:
quicquid plantatur solo, solo cedit – “whatever is affixed to the soil, becomes part of the
soil”.4
Fixtures in a rating context are items of plant and equipment attached to the land and
intended to remain that way. However in determining this, there are many issues involved
and the overall tests are complex.
Chattel
A chattel is essentially a tangible object that is movable. There are many extracts and
definitions of what is a chattel, some definitions are as follows:
1. Personal property, as distinct from real property.
2. Any property which is not freehold land. The property may be a leasehold
(chattel real) or a movable article of property such as household furniture and
jewellery (chattel personal) ... As a matter of interpretation or construction,
the word 'chattel' in appropriate contexts in deeds, wills, statutes and other
instruments can include intangible property (chooses in action) as well an
tangible property.5
The expressions "chattels real" and "chattels personal" are the subject of
paragraphs 1203 and 1204 of volume 35 of Halsbury's Laws of England (4th
ed. re-issue, 1994). The former "are interests concerning or savouring of
realty, such as a term of years in land ... which have the quality of immobility
which makes them akin to realty, but lack indeterminate duration." They are
probably now confined to leaseholds. The latter: "... are, strictly speaking,
things movable, but in modern times the expression is used to denote any
kind of property other than real property and chattels real. ‘Personalty' or
'personal property' includes many kinds of property unknown to the common
law, such as bills of exchange, bank notes and cheques, land improvement
charges, copyrights, patents, shares in joint stock companies, debentures,
government annuities and stock in the public funds, goodwill, and the
exclusive right of burial in a particular place; but does not include title deeds
relating to real estate, heirlooms in the strict sense, fixtures or wild animals,
and does not always include growing crops or trees.6
In situ
In situ is a Latin phrase that literally means ‘in position’. In a property context its meaning is
often referring to an object been ‘in place’.
Real property
Real property and personal property are two of the main terms used in English common law.
Real property refers to the land and tangible fixtures such as buildings.
Personal property refers to personal or private items that are generally chattels i.e. movable
items. They may be tangible in form (such as livestock, furniture, clothes, jewellery etc.) or
intangible items such as securities and leases.
Peter Butt, Land Law , 6th edn, Lawbook Co., Sydney, 2010 p. 41
P.E Nygh & P.J. Butt, Concise Australian Legal Dictionary, 1st edn, Butterworths, 1997
6
Australian Rice Holdings Pty Ltd v Commissioner of State Revenue (2001) VSC 486
4
5
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Victorian Statutory Revaluation
Hereditaments
Real property comprises two distinct elements, corporeal hereditaments and incorporeal
hereditaments. The term hereditaments refers to property that descended to a person’s heir upon their
death if they died intestacy (without a will) prior to 1926. That is realty as opposed to personalty.7
Corporeal hereditaments – are lands, buildings, minerals, trees and all things which are part of or
affixed to the land – in other words, the physical matter over which ownership is exercised. 8
Incorporeal hereditaments – are not things ... but rights. Certain rights were classified as real
property, so that on intestacy before 1926 they also descended to the heir rather than the relatives
entitled to personalty.9
Examples of incorporeal hereditaments are easements and profits.
Sir Robert Megarry and H.W.R Wade, The Law of Real Property , 5th edn, Stevens & Sons Limited, London, 1984, p
11
8
ibid.
9
ibid.
7
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Victorian Statutory Revaluation
Additional Victorian legislation and cases applicable to plant and equipment
Victorian legislation
Duties Act 2000
Court cases
The law in relation to the rateability of plant and equipment has been dealt with by the
courts over a considerable period of time. Early English case law provides some assistance
in understanding the principles adopted in Australia and in particular Victoria.
The United Kingdom legislation was amended in 1925 (Rating and Valuation Act 1925) to
legislate that specified plant and equipment shall be deemed to be part of the heriditament.
This followed various decisions on plant and equipment including R. v. St. Nicholas,
Gloucester (1783), I.T.R 723, Kirby v Hunslet Union [1906] A.C 43 and Smith V Willesden
Union (1919), 89 L.J.K.B 137.
The effect of the decision of the House of Lords in Kirby v. Hunslet Union was to
sweep away the principles on which a discrimination had previously be made
between machinery and plant which was to be “taken into account” in valuation, and
that which was not...and practically to direct the rating authority to value the
hereditament equipped with machinery and plant as it appears to the eye. In Smith v.
Willesden Union, it was decided that in valuing that hereditament, the net annual
value must be ascertained by estimating the rent which would be given for land,
building, and machinery, on the assumption that the hypothetical landlord provides
at his own expense the machinery and plant as well as the land and building, and
that the hypothetical tenant pays rent for all that he provides. 10
There are numerous cases that refer to plant and equipment in many jurisdictions. The
following cases are a collection of the more recent decisions and more frequently cited
historic cases. It is important that the cases are read in their entirety as each decision is
based on the facts pertaining to the individual property and the particular circumstances of
the dispute.
The preamble of the case has been included where available, otherwise the reference to the
“The Valuer” has been provided.
10

Australian Gas Light co. v The Valuer General (1938) - The Valuer, Vol. 5, f.241.

Australian Gas Light Company v The Valuer General (1969) - The Valuer, Vol. 21,
f.297.

City of Montreal v Sun Life Assurance Co. Of Canada - The Valuer, Vol. 13, f.116.

Levitus v City Mutual Life Assurance Society Ltd - The Valuer, Vol. 4, f.166.

Australian Oil Refining Pty Ltd v Metropolitan Water Sewerage and Drainage Board
NSW(1958) - The Valuer, Vol. 15, f.255.

Alpine Shire Council v MHSC Transportation Services Pty [2002] VSC 22 (25
February 2002)
VALUATION OF LAND for rating purposes of an operating commercial airport at the
alpine site of Mount Hotham – where four separate valuations were presented to the
Court, differently based and leading to different assessments of the capital improved
value of the improved airport land – what was the correct methodology for valuing the
airport?
H.B Williams, W.L Roots, D. Widdicombe, D.T Eve, Ryde on Rating, 11th edn, Butterworths London,1963, p 399.
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Victorian Statutory Revaluation

Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue [2004] VSCA
10 (17 February 2004)
REVENUE - Stamp Duties – Value of land on which fixtures erected - Stamps Act 1958
s.63(3)(b)(i)(B) – (1) Effect on value of trade fixtures affixed by tenant under s.28(2) of
Landlord and Tenant Act 1958 – (2) Effect on value of other trade fixtures affixed by
vendor of land before relevant transfer, where fixtures sold to (but not removed by)
third party before sale – Whether right under fixtures contract gave equitable interest
enforceable against land – Relationship of interest in fixtures to "estate" transferred.
REAL PROPERTY – Fixtures – Whether tenant retains "property" in trade fixtures affixed
by tenant in accordance with s.28(2) of Landlord and Tenant Act 1958 – History and
meaning of s.28(2).

Snowy Hydro Limited v Commissioner of State Revenue [2010] VSC 221 (27 May
2010)
DUTIES ACT 2000 (VIC) – Acquisition of an interest in a “landholder” – “Landholder”
entitled to land and other property though a “linked entity” – “Linked entity” held land
and other property under the terms of a joint venture – Construction of joint venture
agreement – Joint venture parties owned the joint venture assets as tenants in common
in proportion to their interests in the joint venture – Construction of s 74 of the Duties
Act 2000 (Vic) – Application of s 74 of the Duties Act to the joint venture – Joint
venture not a “linked entity” – Joint venture not to be treated as if terminated –
“Landholder” holds only the percentage interest in land and other property held by the
“linked entity” under the joint venture – Unencumbered value of that interest –
“Landholder” not “land rich” – No liability for duty – Ss 71(2), 74, 78, 79 of the Duties
Act 2000 (Vic)
WORDS AND PHRASES – “winding up”, “linked entity”
FIXTURES – Whether electricity generator units and ancillary plant chattels or fixtures –
Applicable principles – Plant held to be fixtures

Vicgrain Assets Pty Ltd v Hindmarsh City Council [1999] VSC 47 (5 March 1999)
Valuation of land for rating purposes. Grain storage facilities. Objection to valuation
treated as an appeal to the Court under section 40 Valuation of Land Act 1960 (Vic).
Determination of capital improved value. Basis of valuation – stand-alone or statewide? Methodology of stand-alone valuations. Weighbridge – fixture or chattel?

Bradford (Valuation Officer) v Vtesse Networks Ltd, Court of Appeal - Civil Division,
January 28, 2010, [2010] EWCA Civ 16
Rates – Rateable occupation – Hereditament – Fibre optic telecommunications network
– Network contained in cables partly owned by network provider and partly owned by
third parties – Whether entire network constituting rateable hereditament – Whether
network provider in exclusive occupation.

Australian Provincial Assurance Co Limited v Coroneo [1938] 38 SR (NSW) 700
The test for determining whether an item was a fixture was stated by Jordan CJ in
Australian Provincial Co Ltd v Coroneo:
A fixture is a thing once a chattel which has become in law land through having been
fixed to the land. The question whether a chattel has become a fixture depends upon
whether it has been fixed to the land, and if so for what purpose. If a chattel is actually
fixed to land to any extent by any means other than its own weight then prima facie it
is a fixture; and the burden of proof is upon anyone who asserts that it is not: if it is
not otherwise fixed but is kept in position by its own weight, then prima facie it is not
a fixture; and the burden of proof is on anyone who asserts that it is.11
11
(1938) 38 SR (NSW) 700 at 712
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Victorian Statutory Revaluation
Other cases of reference

Kay’s Leasing Corporation Pty Ltd v Csr Provident Fund Nominees Pty Ltd [1962]
VicRp 62; [1962] VR 429

Holland v Hodgson (1872) LR 7 CP 328

Hobson v Gorringe [1897] 1 Ch 182

Metal Manufacturers Ltd v Federal Commission of Taxation [1999] AC 5229

Waratah Gypsum lty Ltd v Commissioner of Taxation [1999] 112 C.L.R 152

A.G Leech Pty Ltd v Shire of Talbot (1969) Valuation Board of Review

John Sharp & Sons Ltd v City of South Melbourne (1925)
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Victorian Statutory Revaluation
Identification of plant and equipment
To appropriately identify properties with plant and equipment refer to the Australian
Valuation Property Classification Codes (AVPCC) available at www.dse.vic.gov.au/valuation.
Categories include:





Residential
Rural
o Rural Production
Commercial
o Community Services
o Sport, Heritage and Culture
Industrial
o Extractive Industries
o Infrastructure and Facilities
Cancelled/Non-Active Assessments
Where the plant and equipment is valued as a separate line item in the valuation, an
explanation of the plant and equipment and how its added value has been derived is
required.
Where the contractors’ method is used in valuing plant and equipment, the asset and
depreciation template should be utilised.
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Victorian Statutory Revaluation
Rental questionnaire – specific rental requirements applicable to plant and
equipment
In conjunction with the general rental questionnaire the following questions are a guide for
valuers about the type of questions pertaining to plant and equipment and those that are
critical in the analysis of sales.
1. Provide list of plant and equipment, this may be referred to on an asset schedule or a
depreciation schedule.
2. Details on age and economic life (if not provided in asset or depreciation schedule).
3. Is the plant and equipment leased? If so provide lease particulars referred to in
general provisions.
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Victorian Statutory Revaluation
Property inspection – specific requirements applicable to plant and equipment
In conjunction with the general procedure to carry out a property inspection for statutory
purposes the inspection needs to be carried out with the owner/representative who has full
knowledge of the operation and functions of the plant and equipment. The following should
be considered when carrying out a valuation of plant and equipment (for statutory
purposes):

The type, nature, age and life of the plant and equipment.

How was the plant and equipment installed? Ascertain where it was manufactured,
and the time, process and cost of installation.

If, how and why the plant and equipment is installed, fixed or secured to the building
and/or land.

What is the intention of the fixture, is it of a temporary nature or indefinitely fixed?

The function of the plant and equipment and the integration of that function in the
whole process.

At what capacity is the plant and equipment operating? What is the potential
capacity?

The maintenance requirements, i.e. timing, on or off site.

Replacement options and changes in technology.

Is the plant and equipment relevant in the property achieving its highest and best
use?

Is the plant and equipment installed for the better enjoyment of the land?

Ascertain the time, process and cost of removal.

What market sector is the plant and equipment used for and what are the market
conditions for the product produced? Are there any contracts in place and are there
any surrounding uses that support the product?

Is/are the building/s purpose-built to accommodate the plant and equipment or
do/does the building/s have other uses? (A planning/building permit may assist.)

Most operations that have plant and equipment will have an asset schedule or a
depreciation schedule. This document will be essential when determining the added
value of the fixtures.
o
Verify the physical assets on site with the assets in the schedule as the
schedules can frequently be out of date. If this is not available, the valuer will
need to determine this information (such as replacement cost, date installed,
expected life etc.). Plant and equipment usually have a compliance plate (steel
plate with manufacturing data) that may assist.
o
Does the installation of the plant and equipment equate to significant
expenditure? How does this compare to the value of land and improvements?
That is if the plant and equipment can be easily and inexpensively installed it
indicates that it may not have a high component of in situ value. (This can be
measured by comparing installation costs with total in situ value.) Plant that
has a high installation value is a strong indicator of fixture which will be
destroyed by removal.
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Victorian Statutory Revaluation
Fixture or chattel
The question of whether an object is fixture or chattel has been addressed in the following
publications as general principles:

Distinction between Fixtures and Chattels
A physical object will usually be either land or a chattel, but its nature may change
according to the use made of it. The materials used for building a house are thereby
converted from chattels into land, and so automatically pass out of the ownership of
the person who owned them as chattels and become the property of the owner of the
land to which they are attached;...Conversely, when a house is pulled down, the person
who severs the materials from the building converts them from land into chattels. 12

Chattel or Fixture? General Principles
In determining whether an item, previously a chattel, has become a fixture, the
common law formerly looked only to the degree of annexation of the item to the real
estate. If substantially annexed, the item was a fixture; otherwise, it remained a chattel.
In time, however, the importance of the degree of annexation declined and the present
rule evolved.
Under the present rule, whether an item has become a fixture depends primarily upon
the intention with which the item was put in place. If the intention was the better use
or enjoyment of the land, the item is likely to be a fixture; but if the intention was the
better use or enjoyment of the item itself (as distinct from the land), the item is likely
to be a chattel. The degree of annexation remains a factor, but chiefly as a pointer to
the relevant intention.13

Halsbury’s Laws of England
Whether an object that has been brought onto the land has been affixed to the
premises as to become a fixture (or a permanent part of the land) is a question of fact
which principally depends first on the mode and extent of the annexation, and
especially on whether the object can easily be removed without injury to itself or to the
premises; and secondly on the purpose of the annexation, that is to say, whether it was
for the permanent and substantial improvement of the premises or merely for a
temporary purpose or for the more complete enjoyment and use of the object as a
chattel.14
Megarry & Wade, op.cit., p. 731
Butt, op. cit., p.42
14
Halsbury’s Laws of England (4th ed, 2006) [174]
12
13
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Victorian Statutory Revaluation
Fixtures Test
The critical question as to whether or not the plant and equipment forms part of CIV and
EAV is dependent upon whether the plant and equipment is deemed to be part of the land,
namely whether they are fixtures as distinct from chattels.
The two considerations which are commonly regarded as relevant in determining the
intention with which an item has been fixed to the land are:
1. The degree of annexation
2. The object of annexation.
Degree of Annexation
When determining the degree of annexation the following factors are considered relevant:
(a) If an item is fixed to the land to any extent by means other than its own weight
prima facie it is a fixture.
(b) The mode, style and extent of the annexation. The more permanent the more
likely it is a fixture.
(c) Whether it can be detached without substantial damage to itself or that to which
it is attached.
(d) The time and complexity required to remove the items.
(e) Costs of removal and whether it would exceed the value of the attached property.
Purpose of Annexation
When determining the purpose of annexation the following factors are considered relevant:
(a) Whether the item has been affixed for the better enjoyment of the land, building
or the enjoyment of the fixed item.
(b) The nature of the property subject to the annexation.
(c) Function to be served by the annexation of the item.
(d) The degree of integration and reliance on other items at the same location or
whether such equipment has significant characteristics or are a significant part of
a whole system that it cannot be characterised as separate parts ignoring the
function of the system as a whole.
(e) Whether items in question are of a type inherently likely to become redundant
within a fixed period of time.
(f) Whether the item is affixed permanently or for an indefinite or substantial period
of time or for some temporary purpose.
While the authorities support the purpose of annexation and the degree of annexation as
two important considerations they also affirm the necessity to have regard to all the relevant
facts and circumstances when making a determination. It is important to note that single
test criteria are usually not conclusive and it is a combination of tests that determines the
fixtures versus chattel question. Hence the inclusion of plant and equipment in the CIV and
EAV should be assessed on a ‘case by case’ basis.
The following flowchart is designed to assist when determining whether or not plant and
equipment is to be treated as a fixture or chattel.
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Victorian Statutory Revaluation
Purpose of Annexation
(a)
(b)
(c)
(d)
(e)
(f)
Whether the item has been
affixed for the better
enjoyment of the land,
building or the enjoyment
of the fixed property.
The nature of the property
subject to the annexation.
Function to be served by
the annexation of the item.
The degree of integration
and reliance on other items
at the same location or
whether such equipment
has significant
characteristics or are a
significant part of a whole
system that it can not be
characterised as separate
parts ignoring the function
of the system as a whole.
Whether items in question
are of a type inherently
likely to become redundant
within a fixed period of
time.
Whether the item is affixed
permanently or for an
indefinite or substantial
period of time or for some
temporary purpose
Attached
specifically
for a
specific
process,
use or
production
Each
component
forms part
of a
process.
The
function is
essential
as part of a
whole.
Highest
and best
use.
Clearly
affixed to
the land for
the better
using of the
land for the
purpose.
Not clearly
affixed to
the land for
the better
using of the
land for the
purpose
Purpose
built.
Likely to
sell with
P&E
in situ.
Viable
market
place.
Not highest
and best
use.
P & E likely
to be
removed
on sale
Non viable
market
place
High
Utilisation
Not
attached
specifically
for a
specific
process,
use or
production
Not utilised
Evidence of a Fixture
The
component
doesn’t
form part of
a process.
The
function is
nonessential to
the whole.
Long design
life
Short
design life.
Acceptance
technology
Redundant
technology
There is no
intention to
remove
any part for
the design
life of the
item
Removal is
likely before
design life
of item.
Evidence of a Chattel
It is important to note that single test criteria are usually not conclusive, it is a combination of the factors with regard to both considerations; the
degree of annexation and the purpose of annexation that determines the fixtures or chattel question.
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Victorian Statutory Revaluation
Degree of Annexation
(a)
(b)
(c)
(d)
(e)
If an item is fixed to the
land to any extent by
means other than its
own weight prima facie
it is a fixture.
The mode, style and
extent of the
annexation. The more
permanent the more
likely it is a fixture.
Whether it can be
detached without
substantial damage to
itself or the to which it is
attached.
The time and complexity
required to remove the
items.
Costs of removal and
whether it would
exceed the value of the
attached property.
Bolted
Strapped
Own Weight
Hardwired
Moveable
Specifically
engineered
structures or
surfaces
Permanent
Temporary
Specifically
made
Readily
available
Specific
function
Non specific
function
High cost of
installation
Economic
damage on
removal
Significant
insitu value
Low cost of
installation
No economic
damage
Insignificant
insitu value
Evidence of a Fixture
Complex
installation
Complex
removable
required
Significant
time and
labour
required
Non complex
installation
Non complex
removal
Insignificant
time and
labour
required
Significant
cost of
removal
compared to
overall value
Insignificant
cost of
removal
compared to
overall value
Evidence of a Chattel
It is important to note that single test criteria are usually not conclusive, it is a combination of the factors with regard to both considerations; the
degree of annexation and the purpose of annexation that determines the fixtures or chattel question.
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Victorian Statutory Revaluation
Methodology

Capital improved value
The methodologies for assessing value are complex. The following are summaries of the
three main methods used to value plant and equipment – they are not a substitute for
understanding the methods in detail.
These methods rely upon accurate information, and accurate analysis and interpretation
of that information.
The three main methods include:
1. Sales
In conjunction with the general sales analysis provisions, the following specific
issues relate to plant and equipment:

If available, sales comparison is potentially the prime methodology,
however, frequently sales information is limited, if at all available.

In the event that sales information is available then the main aim is to
identify the plant and equipment component/contribution in the sale
price and identify the quality of the plant and equipment.

‘Quality’ refers to issues such as function, age, utilisation, economic life
etc.

Productivity/profitability of plant is important in sales transactions. Sales
that do not reflect the productivity and/or profitability such as liquidator
sales are not helpful in ascertaining this element.

Plant and equipment sold for break-up or removal without the associated
property is usually not considered relevant when ascertaining or assessing
an in situ value.
2. Contractors method
Contractors method is the replacement cost less depreciation (age) and
underutilisation/obsolescence factor.
Contractors method = cost – (depreciation + underutilisation/obsolescence)
The Current Replacement Costs (New) is used in the valuation calculation because
a market value as at the relevant date is required. The purchase price in the
owners Asset Schedule, if not circa the relevant date, is a historic value. It is
recommended the valuer make enquiries with the owner, occupier, manufacturers
or suppliers to ascertain the Current Replacement Costs (New). If the Plant and
Equipment is highly specialised they may consider obtaining advice from a plant
and equipment valuer. Alternatively the valuer can refer to industry standards
and escalate the purchase price for inflation.
When carrying out this approach, the following information is useful:

Owner/ratepayer depreciation schedule and asset register

Obsolescence/book values
While the book values of the plant and equipment (the values that appear
in the owner’s accounting records/asset schedules) will provide very
useful information on historic cost and age, those values have two key
limitations:
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Victorian Statutory Revaluation
a) They are based on historic cost, less depreciation based (usually) only
on age. The depreciation allowances under financial reporting regimes
are designed to align with the expected useful life of each plant and
equipment type, however they can sometimes result in anomalies. For
example if the plant and equipment is in a harsh environment, or
poorly maintained.
b) Importantly, standard depreciation rates do not take account of
economic obsolescence – a critical factor in determining current
market value. Economic obsolescence occurs when technology or
trading circumstances render the particular plant items less profitable
than when they were installed or, in a worst case scenario, no longer
useful.
Economic obsolescence is becoming more prevalent as global markets
become more mobile and technology changes more rapidly. Any
valuation of plant and equipment should be supported by
income/trading trends.
Some further points to consider:
o
Ask whether the plant is operating (on average) at full capacity.
There may be cyclical changes to capacity but it is important to
determine the current and likely future average utilisation rate (a
percentage of full capacity). The valuer needs to distinguish
between the capacity of the plant and the expected future
operator’s utilisation of the plant.
o
Larger organisations will tend to take obsolescence into account by
doing one-off write-downs in their book values. These will usually
be identified as ‘impairment charges’, or be referred to using
similar terminology. If you are relying on book values as an input
to the plant and equipment values then you should ask whether
there have been any impairment write-downs (or write-ups) in
recent years.
o
In the normal course of events a plant and equipment item will be
depreciated each year according to an approved rate of tax
depreciation for that type of item. There will however be instances
where the VALUE of an item is less than its remaining Book Value
because it has either deteriorated faster than normal or because
(more commonly), the business environment has reduced its ability
to contribute to profits.
o
Conversely, there will be instances where the VALUE of an item is
more than its remaining Book Value because it has either endured
in its role longer than normal. These items may, for example, have
been written down to nil Book Value, and they also have been
deleted entirely from the Asset Schedule even though they are still
in full use.
Guidelines on Valuation Methodology for Plant and Equipment – August 2011
Page 15 of 18
Victorian Statutory Revaluation
3. Profits method
The value of the freehold interest is generally derived by capitalising an assessed
market. The market rental is normally a percentage of the EBITDA. In principle
the profits method involves allocating rental to the assets employed in earning
them.
An example of the breakup of assets is:
+
+
The value of the business
The value of the freehold (land and buildings)
The value of plant and equipment
=
Total going concern
Once the land and building and plant and equipment contribution to profit
estimates are ascertained, and a rental value ascribed, then the rental value of
each component needs to be capitalised at an appropriate market rate to
ascertain the CIV.
Land and building rental value @ cap rate
+
Plant and equipment rental Value @ cap rate
=
Total value $_________________
For rating and taxation valuations, the value attributed to the business is not
included.
The capitalisation rate applied to plant and equipment is usually much higher
than capitalisation rates applied to land and building because of the faster
depreciation of plant and equipment.
When carrying out this approach, the following information is a guide to the type
of information that is useful:



Full operating profit and loss statements and balance sheet for last three
years to assess medium term sustainable profit i.e. EBITDA and EBIT level.
Asset register and depreciation schedule for all assets.
Accounting information for goodwill in accounts.
Guidelines on Valuation Methodology for Plant and Equipment – August 2011
Page 16 of 18
Victorian Statutory Revaluation
Industry information
Other relevant material:
The Internet is a valuable resource and the following references may be of use:

Australia & New Zealand Valuation and Property Standards, ANZ Valuation
Property Standards, www.api.org.au/
This professional practice manual sets out the duties, responsibilities and professional
standards of members of the Australian Property Institute and of the Property Institute
of New Zealand.

Australasian Legal Information Institute
www.austlii.edu.au/databases.html
Guidelines on Valuation Methodology for Plant and Equipment – August 2011
Page 17 of 18
Victorian Statutory Revaluation
Valuers Workings2
The following is an example of an Asset and Depreciation Schedule.1
DESCRIPTION OF
ASSET
DATE OF
AQUISITION
Conveyor
1/1/2010
Weighbridge
1/1/2008
COST
PURCHASED
FROM
New or
Secondhand
Year of
Manufacture
No. of hours,
KMS etc
Worked
$1,500,000
AAA P/L
New
2009
2700hrs
$150,000
123 P/L
New
2007
-
Current
CONDITION
Economic
Useful Life
at purchase
Economic
Life
Remaining
at 30/6/11
Depreciation to
30/6/2011
Book Value
As New
25
23.5
$90,000
$1,410,000
$21,000
$129,000
$35,000
$315,000
As New
25
22.5
$350,000
SITE PREP
P/L
New
n/a
Serviceable
50
45
1/7/06
$600,000
ABC P/L
New
2006
Obsolete
15
Nil
1/7/00
$450,000
XYZ P/L
Second hand
1995
Serviceable
10
5
Site Preparation
Works
1/7/2006
Crushing Plant4
Concrete Storage Bays5
$200,000
$450,000
Current
Replacement Cost
(New)3 as at relevant
date
Depreciation
to 1/1/2012
Depreciated
Replacement Cost
ADOPTED
ADDED VALUE
$1,550,000
$124,000
$1,426,000
$1,425,000
$168,000
$26,880
$141,120
$140,000
$400,000
$44,000
$356,000
$355,000
$750,000
$750,000
$0
$0
$550,000
$275,000
$275,000
$275,000
$400,000
$0
Total
Notes:
1. The above is an example of information that is included on an asset register. It is noted however that schedules and registers do vary. Further information can be obtained from a physical inspection.
2. An example of valuers workings have been included to illustrate an added value calculation.
3. The Current Replacement Costs (New) is used in the valuation calculation as a market value as at the relevant date is required. The Purchase Price in the owners Asset Schedule, if not circa the relevant date, is a historic value and needs to be
updated
4. An asset may have an unexpired life and a remaining book value for tax purposes, but could actually be obsolete as a result of exhaustion, functionality or superseded technology.
5. An asset may be already written off to $zero as a result of the expiry of the initial economic life estimate however may still be functional and utilised.
5. Straight Line depreciation has been used in this example.
Guidelines on Valuation Methodology for Plant and Equipment – August 2011
Page 18 of 18