Proper plant valuation

At the moment, for plant and equipment, RICS says valuers are using disparate sources of data, including that imported from Germany and the US, as well as varying interpretations of Office of National Statistics (ONS) figures. This lack of consistency makes valuations impossible to compare and validate, leaving businesses vulnerable. In many cases, the data being used is historical and does not reflect above-inflation rises in material costs, such as copper and steel. As a result, companies may be at risk from inadequate insurance cover, for example. The RICS Plant and Equipment Indices, developed with industry feedback, are intended to provide reliable benchmarking data for use across valuations. These will ensure up-to-date and consistent valuation of assets for financial reporting purposes, insurance valuation loss assessment, capital tax allowances, compensation claims and regulatory valuations. To produce these indices, RCIS is working with the Building Cost Information Service (BCIS), which already produces reliable data used in building valuations. It is expected that the new RCIS indices will be used alongside the existing data to bring the same benefits to plant and equipment valuations, and provide the tools for full asset valuations. In fact, such indices were produced up until the early 1990s, when high inflation meant regular data was necessary, before we saw these fall away during the period of low inflation when existing data was relied upon. However, with dramatic rises in commodity prices and the current economic climate, RCIS believes these indices are desperately needed once more. In addition, the increasing adoption of the International Financial Reporting Standard's (IFRS) fair value accounting, which calls for a more scientific approach to valuation, has reinforced the need for specific UK plant and equipment data, the organisation says. These indices do not replace fair value accounting, but help to provide a more reliable benchmarking for old equipment, ensuring companies can know the value of their assets now. The indices will include an Industrial Equipment Average Index, as well as baseline indices for machinery. These will reflect 'real world' prices, rather than being based on the consumer price index, and will cover factory gate, as well as imported plant and equipment. Within the 'factory gate' index class are metalworking machinery, measuring and testing equipment, special-purpose machinery, iron and steel, and lifting and handling equipment, for example. The finalised index service was published in early July and will be updated by BCIS for monthly publication, with quarterly and annual series also available. While the indices have primarily been developed for use by RCIS members, such as chartered surveyors who perform valuations on equipment, they will be available and relevant to everyone involved with plant and equipment. These indices will be useful to industrial insurance brokers, says RCIS, by squaring the circle between building and contents insurance, and will also be a practical tool for loss adjustors and loss assessors, as well as banks and other institutions plotting asset class mediums. * With around 100,000 qualified members, and over 50,000 students and trainees in some 140 countries, RICS provides the world's leading professional qualification in land, property and construction. www.rics.org First published in Machinery, August 2012