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valuation

  1. 1. WHAT IS VALUATION? 1 Valuation is the determination of monetary value at some specific date, of the property rights encompassed in an ownership. Property rights means the exclusive right to possess, enjoy & dispose Valuation requires application of logical principles and tested methods leading to estimate of value under given circumstances. In short, valuation is both science as well as art.
  2. 2. DIFFERENTIATING COST,PRICE,VALUE ▪ Cost is the amount required to produce or acquire some goods or services. It is either estimated in advance or it is a fact if incurred. ▪ Price is the amount asked or paid for some goods or services. Price becomes cost to the buyer and it is a fact. ▪ Value is an estimate of the price what it ought to be. Value is present worth of future benefits of Income. 2 PRICE VALUE COST
  3. 3. FOUR PILLARS OF VALUE UTILITY The capability to satisfy a future owner’s needs and desires. DEMAND The need or desire for ownership supported by access to finances that satisfy the need. TRANSFERABILITY The ease by which the ownership can be transfered. 3 SCARCITY The finite supply of similar properties.
  4. 4. PURPOSE OF VALUATION 4 2) 1) 6) 4) 5) 3) Sale or Purchase of the property Individual, Trust or Company Land Acquisition Bank Loan/Mortgage/Security Liquidation/Auction Under Income Tax Act (Capital Gain Tax) Insurance Purpose Under Companies act
  5. 5. HISTORICAL COST Historical cost is the price paid for an asset when it was purchased. Historical cost is a fundamental basis in accounting, as it is often used in the reporting for fixed assets. It is also used to determine the basis of potential gains and losses on the disposal of fixed assets.. 5
  6. 6. CURRENT COST Current Cost / Fair market value is the current value of that asset. Imagine if someone were to have purchased an acre of land 10 years ago for Rs.1,00,000 and that land is now worth Rs 20,00,000. The historical cost is Rs1,00,000, and the fair market value/Current Cost is Rs 2,00,000. 6

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