KNOWLEDGE BANK FROM B KANAGA SABAPATHY
LET KNOWLEDGE SPREAD
Message from B. K. sir 21/04/2023
Question :
The property to be valued is a running petrol pump, owned by a private limited company.
The purpose of valuation is to certify the fair market value for the purpose of fixing share value for partition purposes (Year 2023).
The owner wants to certify the land value as the guideline / circle rate. Whether this is reasonable and can be justified?.
To calculate the depreciated value of buildings / improvements, shall I take the cost of construction as on 2005, the year in which the buildings were constructed or cost of construction as on 2023 and allow depreciation.
My opinion :
1. To calculate the depreciated value of the buildings, ascertain the replacement cost as on the date of valuation, age of the building, life of the building and calculate the depreciation amount. Replacement value minus depreciation amount will be the depreciated value.
2. Whereas, if the purpose of valuation is to determine the book value, use the formula
A = P [1 – (r ÷ 100)]n
Where A = Written down value
P = Historic cost
r = Rate of statutory depreciation as per Income Tax rule.
n = Age of the building
3. The fair market value is to be determined based on the prevailing market value. But, if the party requests you to certify the value based on GLR, obtain a request letter from the party and go ahead with the valuation and do not forget to enclose the copy of the letter along with the report. Take a judicious decision depending on the purpose and condition.
4. Be prepared to defend your report when questioned.
With best wishes,
B. KANAGA SABAPATHY
[email protected]
www.bkanagasabapathy.com
About the Author:-
- Mr. B. Kanaga Sabapathy born in 1951, is a Civil Engineer who belongs to the 1972 batch of Regional Engineering College, Tiruchirappalli in Tamilnadu.
- He is a Registered valuer of the Central Board of Direct Taxes, a Professional Engineer and also a Chartered engineer. Valuation is his main profession..
- He was the National Vice-President of the Institution of Valuers (India) for 11 terms.
- He is a regular contributor of articles in the Indian Valuer Journal from the year 1985. His articles especially his regular column “Questions & Opinions” are very popular among the practising valuers in India.
- His book “Guidelines on Valuation for Banks” (2002) is used to be referred by many banks. The valuation formats designed by him were accepted and adopted as the formats by many banks in the country.
- His son K. Arun and daughter B.K. Aruna are also approved valuers and they also contribute articles to the Indian valuer journal.
- His guru: Mr. C.H. Gopinatha Rao, Chennai.
- His mentor: Mr. R.K. Gandhi, Mumbai.
- His role model: Mr. S. Rajaratnam, Chennai.
- His best students: Thousands of valuers in the country
