Valuation Methodologies

There are three particular approaches when considering the appropriate methodology suitable for compliance with the market value or market value based valuation.

• Market comparison approach
• Depreciated replacement cost approach

Market Comparison Approach

The market comparison approach seeks to determine the current value of an asset by reference to recent comparable transactions involving the sale of similar assets.

The market comparison approach is generally appropriate for assets for which an established market exists such as motor vehicles, general plant and equipment, residential property etc.

Cost Approach

The Depreciated Replacement Cost (DRC) is the estimated current cost of replacement of the asset with a similar asset which is not necessarily an exact reproduction but which has similar service potential and function (plus where applicable an amount for installation), less an amount for depreciation in the form of accrued physical wear and tear, economic and functional obsolescence.

The DRC is an acceptable surrogate method for arriving at a market-related value. The method is commonly applied in a valuation situation involving an asset where there is no readily available or otherwise dependable market data to analyse in developing a market value estimate.

Specialised operational assets, by their nature, lack market evidence on which to base a market value assessment and accordingly, having particular regard to the deprival value concept, these require a replacement cost valuation methodology. Consequently such assets are sub-categorised as replacement cost based assets and the market value with continuing use is derived by a depreciated replacement cost approach.