Quantifying depreciation in plant and machinery valuation

Abstract

The Malaysian industrial sector is growing dramatically, and this situation leads to the increasing of needs in Plant and Machinery Valuation. However, in Malaysia there are no intensive and aggressive efforts being done to generate knowledge and exposure to the Valuers on the Plant and Machinery Valuation. The process of valuing plant and machinery involved a lot of works and need plant and machinery valuers with high skill and expertise. Market Comparison method has been considered as the most appropriate method. However because of inadequate comparable sales and inefficiency data collection, the application comparison method is difficult and the cost method is more reliable. Nevertheless, depreciation is one of the critical elements that exist on plant and machinery regardless the type and nature of the plants and machinery. However, there is no standard or guidelines on determination of Depreciation. The depreciation is influenced by physical deterioration, functional and economic obsolesces. The identification of the factor of depreciation for plant or machinery is normally too subjective and thus required thorough analysis. The purpose of this study is to identify the process of plant and machinery valuation and determine the factors or causes of depreciation through market analysis and interviews with the professionals. In order to accomplish the objective of this study, comparative and cross-sectional analyses are adopted. The study revealed that the appropriate method in determine depreciation is Declining Balance Method and the depreciation of plant and machinery is influenced by the Physical deterioration, functional obsolesce, economic obsolesces and external factor of obsolesces.