Subject Code : AR8703

Subject Title : SPECIFICATION, ESTIMATION AND VALUATION

Unit IV VALUATION 08
Valuation. Explanation of terms. Types of values. Sinking fund. Years of purchase.
Depreciation. Types of depreciation. Valuation of real properties. Types, methods and
purpose of valuation.

1. _____________ is the technique of estimating or determining the fair

price or value of a property such as a building, a factory, other engineering
structures of various types.
a) depreciation
b) capital value
c) valuation
d) taxation
Answer: c
Explanation: By valuation the present value of a property is determined. The
present value of property may be decided by its selling price, or income or rent it
may fetch. The value of property depends on its structure, life, maintenance,
location, bank interest, legal control, etc. The value also depends on supply on
demand and the purpose for which valuation is required.

2. What is the capitalized value of a property fetching a net annual rent of

Rs.1000 and the highest rate of interest prevalent being 5%, rate of interest
is 8%?
a) Rs.16500.00
b) Rs.18500.00
c) Rs.12900.00
d) Rs.12500.00
Answer: d
Explanation: For Rs.5.00 interest, capital Rs.1000.00
To get Rs.1000.00 interest, capital = (100/5)*1000
= Rs.20000.00
In short capitalized value is – Net annual income*Year’s purchase
For the same net income if the rate of interest is 8% the capitalized value =
1000*(100/8) = Rs.12500.00.

3. A pumping set with a motor has been installed in a building at a cost of

Rs.2500.00. Assuming the life of the pump as 15 years, work out the amount
of annual instalment of sinking fund required to be deposited to accumulate
the whole amount of 4% compound interest.
a) Rs.355
b) Rs.125
c) Rs.185
d) Rs.1950
Answer: b
Explanation: The annual sinking fund, I = Si / [(1+i)n-1] = 2500*0.04/(1+0.04)15-1 =
2500*0.05 = Rs.125
The owner is to deposit Rs.125/- annually in 4% compound interest carrying
investment for 15 years to accumulate Rs.2500/-.

4. An old building has been purchased by a person at a cost of Rs.30000/-

excluding the cost of the land. Calculate the amount of annual sinking fund at
4% interest assuming the future lie of the building as 20 years and the scrap
value of the building as 10% of the cost of purchase.
a) Rs.979.7
b) Rs.4387.20
c) Rs.107.20
d) Rs.907.20
Answer: d
Explanation: The total amount of sinking fund to be accumulated at the end of 20
years.
S = 30000 * 90/100 = Rs.27000.00
Annual instalment of sinking fund.
I = Si / [(1+i)n-1] = 27000*0.04/(1+0.04)20-1 = 27000*0.0336 = Rs.907.20
Annual Instalment for sinking fund required for 20 years = Rs.907.20.

5. In this method, it is assumed that the property will lose its value by a
constant percentage of its value at the beginning of every year. This method
is called?
a) Sinking fund method
b) Constant percentage method
c) Straight line method
d) Quantity survey method
Answer: c
Explanation: In this method a fixed amount of the original cost is deducted every
year so that at the end of the utility period only the scrap value is left.
Annual depreciation D = Original cost-scrap value/life in year = C-S/n,
Where C- original cost, S- scrap value, n-life of the property in years and D- annual
depreciation. The book value after the number of years, say N years = original cost
– N*D.

6. A property fetches a net annual income of Rs.900 deducting all outgoings.

Workout the capitalized value of the property if the rate of interest is 6%
per annum.
a) Rs.67003.00
b) Rs.189003.00
c) Rs.45603.00
d) Rs.15003.00
Answer: a
Explanation: Year’s purchase = 100/6 = 16.67
Capitalized value of the property = Net income * Y.P. = 900*16.67 = Rs.15003.00.

7. A building costing Rs.700000.00 has been constructed on a freehold land

measuring 100 sq m recently in a big city. Prevailing rate of land in the
neighbourhood is Rs.150.00 per sq m. Determine the net rent of the property,
if the expenditure on an outgoing including sinking fund is Rs.24000.00 per
annum. Work out also the gross rent of the property per month.
a) 48000/-, 8000/-
b) 18000/-, 6000/-
c) 46700/-, 6000/-
d) 48000/-, 6000/-
Answer: d
Explanation: Cost of construction = Rs.700000.00
Cost of land @Rs.150.00 per sq m = 100*150 = Rs.150000.00
Net return:
On building @ 6% on the cost of construction = 700000.00 *6/100 = Rs.42000.00
On the land @ 4% on the cost of land = 700000.00 *6/100 = Rs.6000.00
Total net rent per year = Rs.48000.00
Gross rent = Net rent + outgoings = 48000+24000.00 = 72000.00 per annum
Gross rent per month = 72000/12 = 6000.00.

8. Find the plinth area required for the residential accommodation for an
assistant engineer in the pay scale of Rs.400.00 to 1000.00 per month.
a) 293.33 sq m.
b) 93.33 sq m.
c) 983.33 sq m.
d) 23.33 sq m.
Answer: b
Explanation: Average pay = 400+1000/2 = Rs. 700.00 per month.
Average monthly rent @ 10% of salary = 700.00/10 = Rs.70.00
Average annual rent 70.0*12 = Rs.840.00.
Capital cost of the building @ 6%interest = 840*100/6 = Rs.14000.00
Plinth area required @Rs.150.00 per sq m of plinth area = 14000/150 = 93.33 sq m.
Normally the quarter for the assistant engineer should be constructed at the cost
of Rs.14000.00 having plinth area of 93.33 sq m.
But due to the increase in the cost of construction, this may be increased by 100%
and the capital cost of construction may be fixed as Rs.2800.00 and the
approximate plinth area of 93.33.

9. Obsolescence is the annual periodic payments for repayments of the capital

amount invested by a party.
a) True
b) False
Answer: b
Explanation: An annuity is a series of payments made at equal intervals. Examples
of annuities are regular deposits to a savings account, monthly home mortgage
payments, monthly insurance payments and pension payments. Annuities can be
classified by the frequency of payment dates. The payments (deposits) may be
made weekly, monthly, quarterly, yearly, or at any other regular interval of time.
An annuity which provides for payments for the remainder of a person’s lifetime is
a life annuity.

10. Scrap value is the net annual letting value of a property, which is obtained
after deducting the amount of yearly repairs from the gross income.
a) True
b) False
Answer: b
Explanation: In financial accounting, scrap value is associated with the depreciation
of assets used in a business. In this situation, scrap value is defined as the
expected or estimated value of the asset at the end of its useful life. Scrap value
is also referred to as an asset’s salvage value or residual value.

11. A ___________ can be used to span over a canyon, or depression, or

even over a freeway or roadway.
a) culvert
b) tunnels
c) drainage
d) bridges
Answer: b
Explanation: A bridge doesn’t necessarily have to bridge over water. A bridge can
be used to span over a canyon, or depression, or even over a freeway or roadway.

12. If the span of crossing is greater than 12 feet (3.7 m), the structure is
termed as bridge and otherwise is ______________
a) drainage
b) bridges
c) culvert
d) tunnels

Answer: c
Explanation: A bridge is a structure built to span physical obstacles without closing
the way underneath such as a body of water, valley, or road, for the purpose of
providing passage over the obstacle. There are many different designs that each
serve a particular purpose and apply to different situations.

13. A ___________________ is a construction industry professional with

expert knowledge on construction costs and contracts. They are not to be
confused with Land Surveyors or Land Survey Engineers.
a) Project manager
b) Building services engineer
c) Quantity Surveyor
d) Civil estimators

Answer: c
Explanation: Services provided by a quantity surveyor may include:
• Cost consulting, cost estimating
• Cost planning and commercial management throughout the entire life cycle of the
project from inception to post-completion
• Value determination
• Risk management and calculation
• Procurement advice and assistance during the tendering procedures
• Tender analysis and agreement of the contract sum
• Commercial management and contract administration
• Assistance in dispute resolution
• Asset capitalisation
• Interim valuations and payment assessment
• Cost management process
• Assessing the additional costs of design variations.

14. Skilled occupations include carpenters, electricians, plumbers, ironworkers,

masons, and many other manual crafts, as well as those involved in project
management.
a) True
b) False

Answer: a
Explanation: There are many routes to the different careers within the
construction industry. These three main tiers are based on educational background
and training, which vary by country:
• Unskilled and semi-skilled – General site labor with little or no construction
qualifications.
• Skilled – Tradesmen who’ve served apprenticeships, typically in labor unions, and
on-site managers who possess extensive knowledge and experience in their craft or
profession.
• Technical and management – Personnel with the greatest educational
qualifications, usually graduate degrees, trained to design, manage and instruct the
construction process.

15. Construction is the process of constructing a building or infrastructure.

a) True
b) False

Answer: a
Explanation: Construction differs from manufacturing in that manufacturing
typically involves mass production of similar items without a designated purchaser,
while construction typically takes place on location for a known client. Construction
as an industry comprises six to nine percent of the gross domestic product of
developed countries. Construction starts with planning, design, and financing; and
continues until the project is built and ready for use.

16. The floor area includes the area of the balcony up to

A.100%
B.75%
C.50%
D. 25%.
Answer: C

17. Name the methods of calculating depreciation.

1- Straight line method.

2- Disminishing balance method.
3- Sum of years digits method.
4- Revalution method.

18. What do you mean by scrap value?

The amount which will be realized at the end of useful life of a asset is called
scrap value.

19.  What do you mean by depletion?

The process of measuring and recording the exhaustion of natural resources due to
their use is called depletion.

20. Explain the term "Tangible plant Assets"?

The term tangible denotes physical substance, such as machinery, furniture, motor
car, building etc.

21. Explain the term "Intangible assets"?

The assets which are used in the operation is called intangible assets such as
goodwill, copy right, patents etc.

22. Define "original cost method" of depreciation?

When depreciation is calculated under equal portion of the asset's cost as

depreciation expenses in each period of the asset's useful life is called original
cost method or straight line method.

23. For residential building the liveable area should be 50% to 65% of the
plinth area.
a) True
b) False

Answer: b
Explanation: For residential building the liveable area should be 50% to 65% of the
plinth area. The circulation area should be minimum possible depending on the
climatic condition of the region.

24. Drawing room should be light and ventilated and located in the heart of
the building.
a) False
b) True

Answer: b
Explanation: For orthodox families observing purda, the drawing room may be
placed in the front, having a verandah in the front and a lobby or dining room in the
rear. Drawing room serves as recreation room, a study room, entertaining room for
guests and visitors and a congregation room on special occasions of marriages,
religious functions, etc.

25. Bedroom should not be placed on the sides of the building.

a) True
b) False

Answer: b
Explanation: It should be placed with at least one wall exposed to the outer space
for ventilation and light. They should be placed on the sides of the prevailing wind
with sufficient windows and ventilators having sun shades to protect against sun
and rain.

26. Kitchen should be placed opposite to the direction of the prevailing wind.
a) True
b) False
Answer: b
Explanation: Kitchen should be placed opposite to the direction of the prevailing
wind so that smoke may not enter into the other rooms of these building. It is
better to have kitchen in a separate wing or block or disconnected with a lobby and
windows and chimney for smoke to escape.

27. The minimum width of staircase should be 0.9 m clear of railing and may
range up to 1.5 m.
a) True
b) False

Answer: a
Explanation: There should be a clear head-way of 2.1 m above each step and
landing. The staircase should be constructed in two flights having a landing in the
middle to make it easy and comfortable to climb.

28. Which factor is not considered on studying of site?

a) Number of gender ratio
b) Study of site with respect to other surrounding sites
c) Study of geographical and geological conditions of site
d) Location site

Answer: a
Explanation: Factors considered on studying of site are-

1. Location site

2. Study of site with respect to other surrounding sites

3. Study of geographical and geological conditions of site

4. Climatic conditions of site

5. Survey map site

6. Average air direction

 7. Network of road pattern

8. Services available today, expected tomorrow

9. Environmental conditions

10. Mode of transportation available and which have to be incorporated

11. Type of labour available- skilled, unskilled, semiskilled

12. Type of equipments on construction

13. Time available for planning and execution of work till finish

29. What should the planner must have an interaction with the
master/residents to understand the following?
a) Aim/object/purpose of building
b) Number of people using the building
c) Type of people, their education, awareness
d) Dressing sense of the people

Answer: d
Explanation: After theses studies planner must have an interaction with the
master/residents to understand the following:
i. Aim/object/purpose of building
ii. Number of people using the building
iii. Type of people,their education,awareness
iv. Art and culture of the people
v. What are the expected actions and interations of people
vi. Maximum and minimum requirements of the people
vii. Their expection about maintanence of the building.

30. Which among the following is not a principle of planning?

a) Furniture requirements
b) Aspect
c) Prospect
d) Respect

Answer: d
Explanation: *Aspect- Is meant for arrangement of doors and windows 1n the
external walls of the bui1iding wh1ch allows the natural gifts of sun shine and air,
scenery etc.
*Prospect- is determine by the views desired from certain rooms of the house and
is interest by surroundings peculiarities of selected site
*Furniture requirements- it 1s the functional requirement of a room decides the
required furniture.

31. ____________ refers to the effect produced by deriving the maximum

benefits from the minimum dimensions off a room.
a) Compactness
b) Roominess
c) Grouping
d) Privacy

Answer: b
Explanation: Giving due importance to the furniture placement in the room. Factors
effecting of roominess are- size of the room, shape, furniture used, position of
doors, windows.

32. __________ is nothing, but the movement.

a) Circulation
b) Privacy
c) Grouping
d) Ventilation

Answer: a
Explanation: It is nothing but the movement. This is two types of circulation –
Horizontal Circulation, Vertical Circulation
Horizontal circulation: It is the circulation on the same floor, Vertical circulation:
It nothing but the movement of upward and downward movement.

33. In sinking fund method of depreciation

a) A fixed amount is deposited annually

b) The rate of interest is compounded yearly
c) It requires smaller amount as compared to straight light line method
d) All of these

Answer: d

34. The book value of plant is

a) Cost of plant
b) Accrued depreciation
c) Difference of (a) and (b) above
d) Sum of (a) and (b) above

Answer: c

35. In straight-line method of depreciation, the money to be reserved for

depreciation is

a) Inversely proportional to square of time

b) Directly proportional to square of time
c) Inversely proportional to time
d) Directly proportional to time

Answer: c

36. The main object of providing depreciation is

(a)               To calculate true profit. 

(b)              To show true financial position.
(c)              To reduce tax.
(d)              To provide funds for replacement.
Answer: a
37. Depreciation arises because of

(a)               Fall in the market value of an asst.

(b)              Physical wear and tear. 
(c)              Fall in the value of money.
(d)              None of them.
Answer: b

38. Depreciation is a process of

(a)               Valuation 
(b)              Allocation
(c)              Both valuation and allocation
(d)              None of them.
Answer: a

39. Under the straight line method of providing depreciation it

(a)               Increase every year.

(b)              Remain constant every year. 
(c)              Decreases every year
(d)              None of them.
Answer: b

40. Under the diminishing balance method depreciation it

(a)               Increases every year.

(b)              Decreases every year. 
(c)              Remain constant every year.
(d)              None of them.
Answer: b

41. Under the fixed installment method of providing depreciation it is

calculated on

(a)       Original cost 

(b)       on balance amount
(c)       On scrap value                      
(d)       None of them
Answer: a
42. Under the diminishing balance method, depreciation is calculated on

(a)       Scrap value                            

(b)       On original value
(c)       On book value 
(d)       None of them
Answer: c

43. The amount of depreciation charged on a machinery will be debited to

(a)       Machinery account               

(b)       Depreciation account 
(c)       Cash account                             
d)       Repair account
Answer: b

44. Loss on sale of plant and machinery should be written off against

(a)               Share premium

(b)              Depreciation fund account 
(c)              Sale account
(d)              Profit & loss account
Answer: b

45. Asset which have a limited useful life are termed as

(a)       Limited assets                       (b)       Depreciation assets 

(c)       Unlimited asset                     (d)       None of these

Answer: b

46. Process of becoming out of date or obsolete is termed as

(a)       Physical deterioration         

(b)       Depletion
(c)       Obsolescence 
(d)       Amortization

Answer: c
47. Which of the term is used to write off in reference to tangible fixed
assets

(a)       Depreciation
(b)       Depletion
(c)       Amortization                         
(d)       Both (b) and (c)

Answer: a

48. The economic factors causing depreciation

(a)               Time factor

(b)              Obsolescence and inadequacy 
(c)              Wear and tear
(d)              Money valuation
Answer: b

49. Total depreciation cannot exceeds its

(a)       Scrap value                            

(b)       Cost value
(c)       Market value                         
(d)       Depreciable value 
Answer: d

50. Depreciation value of an asset is equal to

(a)       Cost + Scrap value               

(b)       Cost + Market price
(c)       Cost – Scrap value 
(d)       None of these

Answer: c

51. Depreciation does not depend on fluctuations as

(a)       Market value of asset 

(b)       Cost of price of asset
(c)       Scrap value of asset              
(d)       None of these
Answer: a

52. Depreciation is

(a)       An income                             

(b)       An asset
(c)       A loss  
(d)       A liability
Answer: c

53. The books value of an asset is obtained by deducting depreciation from its

(a)       Market value                         

(b)       Scrap value
(c)       Market + Cost price             
(d)       Cost  
Answer: d

54. Depreciation fund method is also known as

(a)               Sinking fund method 

(b)              Annuity method
(c)              Sum of years digits method
(d)              None of these
Answer: a

55. The method is specially suited to natural resources (mines, quarries, sand,
pits etc.) is said to be

(a)       Annuity method                     (b)       Depletion method  

(c)       Revaluation method              (d)       Sum of digits method

Answer: b

56. In the provision method of depreciation the asset always appears at

(a)       Cost price  

(b)       Market Price
(c)       Scrap Value                           
(d)       None
Answer: a

57. In _____________ method, it is assumed that a property loses its value

by the same amount every year.

(a) Sinking fund
(b) Operating Cost
(c) Constant percentage
(d) Straight line

Answer: d

58. The term ____________ is used to indicate the process of allocating a

prepaid expense to accounting periods during which there are benefits realised
from the depreciable equipment.

(a) Cost Depreciation
(b) Investment charges
(C) Maintenance and repairs
(d) Operation cost

Answer: a

59. In _____________ method, it is assumed that a property will lose its

value by a constant percentage of its value at the beginning of every year.

(A) Sinking fund

(B) Constant percentage

(C) Straight line

(D) Operating Cost

Answer: b

60. In ______________, the owner has to invest a certain amount for the
purchase of an equipment.
(A) Cost depreciation

(B) Investment charges

(C) Operation cost

(D) Management

Answer: b

61. The annual cost of _______________ may be determined independently

or it may be linked up with the depreciated cost of the equipment by a certain
fix percentage.

(A) Maintenance and repairs

(B) Depreciation cost

(C) Installation

(D) Operation cost

Answer: a

62. __________________ indicates the time duration by which we comes to

know about the destructive period of an equipment.

(A) Depreciation

(B) Inadequacy

(C) Obsolescence

(D) Normal deterioration

Answer: d

63. Due to _______________ the equipment seems physically sound but it

becomes old fashioned and the rate of its output become less.

(A) Depreciation
(B) Downtime

(C) Obsolescence

(D) Deterioration

Answer: c

64. An earth moving equipment costs Rs. 5,00,000/- and has an estimated
life of 10 years and salvage value of Rs. 50,000/-. What uniform annual
amount must be set aside at the end of each of the 10 years for replacement
if the interest rate is 8 % per annum and if the sinking fund factor at 8 %
per annum interest rate for 10 years is 0.069?

(A) Rs. 31050

(B) Rs. 34500

(C) Rs. 37950

(D) Rs. 50000

Answer: a

65. Sinking fund is

(A) The fund for rebuilding a structure when its economic life is over

(B) Raised to meet maintenance cost

(C) The total sum to be paid to the municipal authorities by the tenants

(D) A part of the money kept in reserve for providing additional structures and
structural modifications.

Answer: a