Guidance on valuation of fixed assets
Overview of the process
The valuation of the assets which were transferred from the Central Government to the LGUs is a process
of valuing a large number of properties through use of standardized procedures. The following simplified
and time saving process might be considered:
Assets transferred to the LGUs
Collect data for the assets (age, sq. m.,
location, type of construction, other
characteristics).
Classify the assets in two groups: assets
that can be accounted as property, plant,
and equipment and heritage assets
Property plant and equipment
Group the assets on the basis of similar
characteristics:
- Type, function and purpose of the asset
- Location
- Age of the assets
- Technical characteristics
Heritage assets
Create a detailed list of the heritage
assets which will be kept by the LGU
No publicly available reference prices
Publicly available reference prices
DRC method
Market comparison method
Select a sample of assets (two-three
assets) from each group
Perform valuation on the sample assets
using the DRC method
Select the relevant reference prices
published by the Government institutions
for each group of assets
Apply the selected reference prices to
individual assets within the group
Estimate “sample value per unit” based
on the values of the sample assets
Apply the estimated “sample value per
unit” to individual assets within the group
Perform control tests and fine-tuning (look for significant value differences among similar type
assets etc.)
It should be noted that the valuation performed based on the above process will be used only for the LGU
reporting purposes i.e. recording the assets in the LGUs accounting records, and it cannot be used for any
other purposes e.g. transactions with third parties. This process will not yield market or fair value of the
assets subject to the valuation.
These process can be applied either on a central level (for all LGUs) or at local level by each LGU.
Further details of the envisaged process steps are presented below.
Suggested Asset Groups
For the purpose of the valuation of the assets that were transferred from the Central Government to the
LGUs, the assets can be initially classified as:

either property, plant, and equipment; or

heritage assets.
Property, plant, and equipment
In order to optimise the valuation process of the nationally spread assets and to make it more efficient,
these assets can be further split into groups of assets with similar characteristics:
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Type, function and purpose of the asset (e.g. agricultural land, development land, hospitals, schools,
administrative buildings, roads, sewerage and water supply systems and etc.)
Location (e.g. region and district if there are specific characteristics per region)
Age of the assets (year of construction)
Technical characteristics (construction types, capacity, model and etc.)
Examples of possible groups would include: agricultural land in the area of Tirana, two lane asphalt streets
built in the period 1960-1980, and monolithic schools built in the period 1960-1980.
Valuation Approach
Based on the characteristics and publicly available information, each group of assets could be valued using
either comparison method, or depreciated replacement costs method.
Comparison method
For those groups of assets for which there are publicly available reference prices, the comparison method
may be applied. Typically these groups would include the agricultural lands, development lands, and
commercial buildings.
Under this method, the first step is to consider the prices for transactions of identical or similar assets that
have occurred recently in the market. If few transactions have occurred or there are few assets for which
selling prices are listed, reference prices for identical or similar assets which have been published by
Government institutions could be also considered as an alternative.
The value of each individual asset is determined by multiplying the relevant price/reference price with the
surface of each individual asset.
Depreciated replacement cost method
For those groups of assets for which there are no publicly available reference prices, the depreciated
replacement cost (“DRC”) method could be utilised. Generally, these groups would include hospitals,
schools, roads, sewerage and water supply systems.
Since each group consists of similar assets, for the purpose of this process, the value of the individual
assets might be based on the values of a sample of assets within each group determined using the DRC
method.
Under the DRC method, the value is estimated based on the cost of reproducing, or replacing the valued
property, less depreciation arising from physical deterioration, and functional and economic obsolescence.
DRC Value = CR - PD - FO - EO
Where:
CR – Cost of reproducing or replacing with a new asset
PD – Physical Deterioration
FO – Functional Obsolesce
EO - Economic Obsolescence
The cost of reproducing or replacing the valued asset is determined as the cost of constructing the property
in like kind at current prices, using the same materials, construction standards, designs, layout, and quality
of workmanship. One of the sources that may be used to estimate the cost of reproducing, or replacing is
the most recent decision of the Council of Ministers which states certain estimates of construction costs (for
details on the most recent decision please refer to Appendix XX).
In estimating the depreciated replacement cost of the valued assets, three forms of depreciation are
considered: physical deterioration, functional obsolescence and economic obsolescence. Taking into
consideration the nature of these assets, for most of them the functional and economic obsolescence might
be considered as nil.
A “sample value per unit” would be assessed, using the values of a sample of assets estimated using the
DRC method. The “sample value per unit” would be applied to the rest of the individual assets within the
group. The “sample value per unit” might be presented either as value per meter (e.g. roads, sewerage,
water supply systems and etc.), as value per square meter (e.g. valuation of schools, hospitals and other
buildings) or as value per cubic meter for some specific assets.
The above method and process is illustrated with the following illustrative example.
From a group of monolithic schools built in the period from 1960 to 1980, which consists of 50 schools, a
sample of two to three schools are selected. These sampled schools can be valued using the DRC method.
Based on the estimated values for the sampled schools, a value per square meter is estimated by dividing
the values of these schools with their surface. In order to estimate the value of each school in the group,
the sample value per square meter is multiplied with the surface of each individual school.
Heritage assets
According to IPSAS 17, an entity is not required to recognize heritage assets that would otherwise meet
the definition of, and recognition criteria for property, plant, and equipment.
Assets may be classified as heritage assets because of their cultural, environmental, or historical
significance. According to IPSAS 17, some of the characteristics that are displayed by these assets are:
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Their value in cultural, environmental, educational, and historical terms is unlikely to be fully reflected
in a financial value based purely on a market price;
Legal and/or statutory obligations may impose prohibitions or severe restrictions on disposal by sale;
They are often irreplaceable and their value may increase over time, even if their physical condition
deteriorates; and
It may be difficult to estimate their useful lives, which in some cases could be several hundred years
Some of the assets that are owned by the LGUs and may meet these criteria are monuments, cemeteries
and historical buildings.