SECORIN, JOSUE B.

BSREM-SC 2
SEPT.12, 2020

Prelim examination
REM 9 APPRAISAL & ASSESSMENT in the GOV’T SECTOR

DEFINITION OF TERM

1.MACHINERY
“Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or
apparatus, which may not be attached, permanently or temporarily to the real property. It
includes the physical facilities for production, the installations and appurtenant service facilities,
those which are mobile, self-powered or self-propelled, and those not permanently attached to
the real property which are actually, directly, and exclusively used to meet the needs of the
particular industry, business or activity and which by their very nature and purpose are designed
for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural
purposes.”
“Physical facilities for production, installations and appurtenant service facilities, those which
are mobile, self-powered, or self-propelled and those not permanently attached to the real
property shall be classified as real property provided that:
(1) They are actually, directly, and exclusively used to meet the needs of the particular industry,
business, or activity; and
(2) By their very nature and purpose are designed for, or necessary to manufacturing, mining,
logging, commercial, industrial, or agricultural purposes.
Machinery which are of general purpose use including but not limited to office equipment,
typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons),
microcomputers, facsimile machines, telex machines, cash dispensers, furniture and fixtures,
freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing
machines which are not directly and exclusively used to meet the needs of a particular industry,
business or activity shall not be considered within the definition of machinery under this Rule.
Residential machinery shall include machines, equipment, appliances or apparatus permanently
attached to residential land and improvements or those immovable by destination.” (LGC IRR,
Article 290 (o))

2.DEPRECIATION
The economic Life for each category of machinery can be estimated by referring to the estimated
economic lives of machinery and equipment.
If the machine is expected to have an economic life of less than 20 years, then it must be
adjusted to comply with Section 225 of the LGC.

3.EQUIPMENT
the set of articles or physical resources serving to equip a person or thing: such as. (1) : the
implements used in an operation or activity : apparatus sports equipment. (2) : all the fixed assets
other than land and buildings of a business enterprise
4.PLANT.
Property, plant, and equipment are physical or tangible assets that are long-term assets
that typically have a life of more than one year. Examples of property, plant, and
equipment (PP&E) include: Vehicles like trucks, Office furniture, Machinery, Buildings,
Undeveloped land.

5.RCN-Replacement Cost New

6.The cost Approach or the Depreciated Replacement Cost (DRC) – a cost estimate is made to
replace the asset or group of assets appraised in accordance with current market prices for similar
assets. This approach generally furnishes the most reliable indication of value for assets when
there is little direct evidence available.

7.Direct Costs – costs directly related to the acquisition and installation of the unit such as basic
cost, freight charges, insurance, bank charges and commission, duties and taxes, other landing
charges and handling and cost of transportation to site.

8.Indirect Costs – costs not directly related to the acquisition of a property but relates to the
installation and acquisition of the entire property such as design and engineering, technical
know-how and pre-operating expenses.
9.MAXIMUM DEPRECIATION OF MACHINERY
the LCG fixes the maximum rate of depreciation of machinery and equipment for real property
tax purposes.
For purposes of assessment, an allowance shall be made for machinery at a rate not exceeding
5% of its original cost or its replacement or reproduction cost, as the case my be, for each year of
use. Provided however ,that the remaining value for all kinds of machinery shall be fixed at not
less than 20% of such original, replacement, reproduction cost for so long as the Machinery is
useful and in opration..

10.SCRAP VALUE.
Scrap value is the worth of a physical asset's individual components when the asset itself is
deemed no longer usable. The individual components, known as scrap, are worth something if
they can be put to other uses. Sometimes scrap materials can be used as-is and other times they
must be processed before they can be reused. An item's scrap value—also called residual value,
break-up value, or salvage value—is determined by the supply and demand for the materials it
can be broken down into.

PROBLEM SOLVING

1. A commercial machinery electric transformer has a capacity of 15 KVA. Economic life of

machinery is 15 years. The original cost of machinery is php 78 000.00. Installation cost is php
10 000.00, freight and handling is php 5 000.00. The machinery was acquired in year 2019 and
in operation 2019. The machinery is locally made. Price index is 1.213 at the same time of
acquisition. Compute for the following.
A. market value
B. assessed value
C. tax due
D. tax effectivity

SOLUTION

MV = 78 000 + 10 000 + 5 000 = 93 000

AV = 93 000 × 80 percent = 74 400
Tax Due = 74 000 × 2 percent = 1480
Tax effectivity: JANUARY 2020

2. An industry machinery, gold processing plant has a capacity of 500 tons per day. It has an
economic life of 20 years. It was acquired in year 2020 and operated in the same year. It is an
imported machinery. Its acquisition cost is php 500 000 000.00. freight and handling php 100
000.00, brokerage php 50 000.00, insurance php 200 000.00. Capability development training for
technical men php 100 000.00and installation cost is php 250 000.00. Compute for the following.
A. market value
B. assessed value
C. tax due
D. tax effectivity

SOLUTION

MV = 500 000 + 100 000 + 50 000 + 200 000 + 100 000 + 250 000 = 500 700 000
AV = 500 700 000 × 80 percent = 400 560 000
Tax Due = 8 011 200
Tax effectivity: JANUARY 2021