LENDER’S PERSPECTIVE FOR BOOK VALUE OF AN ASSET

Book Value from Secured lending (Bank) Valuation perspective?
1. Book value is nothing but the carrying cost of the asset to its owner.
2. Book value is generally equal to acquisition cost on the date of purchase or date of capitalization.
3. Asset is subjected to depreciation year on year at a defined rate as per norms/guidelines applicable or followed by the owner of the asset and post-depreciated cost will be the net carrying cost.
4. Book value is nothing to do with market value and information if any sought by the banker is only as additional input for analysis.
5. Book value of land is static always as no depreciation is allowed on it.
6. Book value and gross block of the asset are the same on the day of capitalization.
7. Gross block based on a policy of the owner of the assets will include net cash outflow to for acquiring that asset till the date of capitalization.
a. Cash outflow includes the cost of the asset, registration charges, brokerage & commission paid if any, legal fees, incidental expenditures including interest on borrowing on the date of capitalization, and unreimbursed GST if any updates.
8. In case of an asset owned by an individual or any entity in the absence of details of the accounting gross value of the asset could be sale deed transaction cost plus stamp duty paid as appears in a copy of the sale deed (that is visible to us with appropriate noting to that effect.
9. In the case of assets owned by an entity it is easy to get the figure from the copy of FAR on the day of valuation and is possible only if you are able to obtain an extract of it from the owner. Off course one needs to know how to read and analyze FAR, more particularly when multiple assets are owned by the entity)
10. FAR is a big boon for valuers especially while evaluating specialized structures as well as to self-test their work in cases of general structures.