Tangible Asset Valuation and Its Impact on Businesses

IAIP was fortunate to have Andrew Basso, Senior Manager, KPMG at Philadelphia, for an interactive session on “Tangible Asset Valuation and Its Impact on Businesses” at Bangalore on September 13, 2012. He provided insight into tangible asset valuation for tax and financial reporting purposes. As this segment of valuation is in early stages in India there was a sense of excitement among fellow members to listen to Basso; thereby making the session lively.

Andrew explained that tangible asset valuation include valuation of real property and personal property. Real property consists of land, building and improvements. Personal property includes plant, machinery, equipment, tools etc. Most of the time, requirement for valuing tangible asset is triggered by Business combination. He elaborated the three methods of valuing these assets: cost approach, market approach and income approach. He pointed out that the income approach is generally not utilized in valuation of the personal property as it is very difficult to assign the income stream to it. Cost and market approach are generally utilized to value the personal property. In case of income generating real property, income approach is the best approach.

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The two basis used in the valuation of tangible assets are (1) in use, and (2) in exchange. In use premise considers that the asset purchased is in use and the buyer would not be required to spend extra amount to detach the asset, reassemble and again fix it. In exchange premise, the asset is sold in part. It is detached, transported and again fixed at the buyer’s location. In this process, buyer has to spend more to transport and then again fix it at his location. Thus, value under in use premise is generally higher than value in exchange premise.

If any asset is leased by a company, value of lease is determined based on the leasehold interest. It also depends on whether the lease rate is favourable or non-favourable. If a retailer leases a land at $10 per sq. ft. whereas same land is leased in the market at $12 sq. ft. then retailer is at advantage. This difference in value is calculated over the forecast period, discounted at appropriate rate and recorded as an asset for financial reporting purposes. Non-favourable lease is valued in the same manner and recorded as liability in the balance sheet.

While valuing the tangible asset outside the home country, it is recommended to use the local person to gather the information about the asset. Otherwise, the data provided by any other person who have not visited the property location will not be a good input for the valuation.

Basso also answered questions on the U.S. housing market conditions and trends, his experience of valuing property in India, valuation trend in Indian real estate market, REIT valuation etc.

About the Speaker: 

Andrew Basso is a Senior Manager at KPMG LLP’s Philadelphia practice in the United States. He has around 8 years of experience, primarily focused on tangible asset valuation inclusive of machinery, equipment and real estate. He provides his expertise on real estate project feasibility and development potential, valuations for tax planning and for financial reporting purposes with emphasis on bankruptcy and fresh-start” accounting, foreign interest real property tax analysis, accounting for business combinations and asset impairment analysis. He has worked on many international assignments throughout Canada, the United Kingdom, Netherlands, Germany, Italy, Brazil and Singapore. Andrew holds ASA designation in machinery technical specialities conferred by the American Society of Appraisers. He completed his BS in finance and marketing from the Lehigh University, Pennsylvania.

Contributions from: Deepak Mundra, IAIP Volunteer

Photographs from: IAIP Volunteers, Bangalore

About IAIP

India Association of Investment Professionals (IAIP), which is established April 2005 and located in Mumbai, is an association of local investment professionals. As one of the 136 CFA Institute member societies, IAIP connects members to a global network of investment professionals. Consisting of portfolio managers, security analysts, investment advisors, and other financial professionals, IAIP promotes ethical and professional standards within the investment industry, facilitates the exchange of information and opinions among people within the local investment community and beyond, and works to further the public’s understanding of the CFA designation and investment industry.
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One Response to Tangible Asset Valuation and Its Impact on Businesses

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