CASE STUDY 1 :

An owner purchased a piece of land admeasuring about 350 m² and constructed a bungalow of ground and

one upper floor for his personal use some 30 years back. The bungalow is of first-class construction having

a future economic life of 40 years and has got the total built-up area of 300 m². The owner now desires to

sale the same and has received an offer of Rs. 55 lakhs with vacant possession or in the alternative he has

been offered a gross yearly rent of Rs. 2,00,000 for the bungalow and the plot together. There is good

demand for such property in the locality.

Value of land in the locality for similar plots=Rs. 8,000 per sq.m.

Present replacement cost of such a bungalow =Rs. 15,000 per sq.m.

Total outgoings = 15 per cent of the gross rent

Annual sinking fund for redemption of Re. 1 at 5 per cent in 70 years =0.0017

Amount of Re. 1 per annum in 30 years at 5 per cent =Rs. 66.439

Year’s purchase at 3% in perpetuity = 33.33

Q1.What is the amount of depreciation of the bungalow?

a)42.86 per cent

b)11.29 per cent

c)15.30 per cent

d)Nil

Q2.What will be the depreciated replacement cost of the bungalow?

a)Rs. 39,91,950

b)Rs. 38,11,500

c)Rs. 35,12,250

d)Rs. 45,00,000

Q3.What will be the insurable value for reinstatement policy?

a)Rs. 39,91,950

b)Rs. 45,00,000

c)Rs. 65,00,000

d)Rs. 38,11,500

Q4. What will be the market value of the property by income approach?

a)Rs. 66,66,000

b)Rs. 56,66,000

c)Rs. 55,00,000

d)Rs. 50,00,000

SOLUTION :

Data :

Extent of plot = 350 m2

Builtup area of GF + FF =300 m2

Age of the building = 30 years

Future economic life = 40 years

Gross yearly rent = Rs. 2,00,000

Outgoings = Rs. 15% of gross rent

Land rate = Rs. 8,000/sq.m.

Replacement rate of building =Rs. 15,000/sq.m.

Years purchase = 33.33

Q1. Depreciation of the bungalow

Useful life span = 70 years

Age of the building =30 years

From the data given, it appears that depreciation is to be calculated by sinking fund method.

Annual Sinking fund = 0.0017 So in 30 years it will amount to 0.0017 x 66.439 = 0.1129 or 11.29% ... the

option is “b”.

Q2. Depreciated replacement cost

Depreciation percentage =11.29

Replacement cost = Rs. 45,00,000

Depreciation value =0.1129 x 45,00,000 = Rs. 5,08,050

Depreciated replacement value = 45,00,000 - 5,08,050 = Rs. 39,91,950 ... the option is “a”.
Q3. Insurable value for reinstatement policy

Plinth area =300 m2

Replacement cost = Rs. 15,000/m2

Replacement value for the purpose of insurance = Rs. 45,00,000/-... the option is “b”.

Q4. Market value by income approach

Gross rent = Rs. 2,00,000

Outgoings 15% =Rs. 30,000

Net income =Rs. 1,70,000

Years purchase= 33.33

Capitalised value=1,70,000 x 33.33 = Rs. 56,66,100 say, Rs. 56,66,000 ... the option is “b”.

2.0. CASE STUDY 2 : Mr. ‘X’ started construction of his 300 sq.m. building in Raipur in 1998 and completed

the same is 2000. The rate of construction of similar type of building in 1992 at Delhi following CPWD plinth

area rate was Rs. 3,200/sq.m. 30%, 60% and 10% construction of the building were done in year - 1998,

1999 & 2000 respectively and corresponding CPWD cost index of Raipur in those years were 142, 148 and
156 respectively. The cost index of Raipur in 2019 with respect to the base year 1992 is 482. Economic life

of the building is 85 years.

Q1.How much expenditure Mr. ‘X’ made in year 2000 towards construction of the building?

a)Rs. 8,52,480

b)Rs. 4,08,960

c)Rs. 14,97,600

d)Rs. 1,49,760

Q2. What is historical cost of construction of building Mr. ‘X’?

a)Rs. 14,11,200

b)Rs. 1,42,080

c)Rs. 14,97,600

d)Rs. 1,36,320

Q3.What is the replacement cost of the new building in 2019?

a)Rs. 68,48,256

b)Rs. 48,01,984

c)Rs. 46,27,200

d)Rs. 68,01,984

Q4.What is the depreciated replacement cost of the building in 2019?

a)Rs. 53,25,889

b)Rs. 37,34,503

c)Rs. 52,89,903

d)Rs. 35,98,573

SOLUTION

DATA

Building area =300 sq.m.

Commencement of construction = 1998

Completion of construction = 2000

P.A. rate in 1992 @ Delhi= Rs. 3,200/sq.m.

Stages1998 = 30% construction 1999 = 60% construction 2000 = 10% construction

Cost index 1998 = 142 1999 = 148 2000 = 156 2019 = 482

Economic life of the building= 85 years

Q1.

Expenditure incurred in 2000 Plinth area = 300 sq.m.

P.A. rate in 1992=Rs. 3,200 with base 100

Cost index in 2000 =156

Replacement cost in 2000 =3,200 x 156/100 = Rs. 4,992/sq.m

Expenditure incurred in 2000 (10%)=300 x 4,992 x 0.1 = Rs. 1,49,760/- ... The option is “d”.

Q2.

Historical cost

1998 =300 x 3,200 x 142/100 x 30% completion =Rs. 4,08,960

1999 =300 x 3,200 x 148/100 x 60% completion =Rs. 8,52,480

2000 =300 x 3,200 x 156/100 x 10% completion =Rs. 1,49,760

Total= Rs. 14,11,200/- ... The option is “a”.

Q3.Replacement cost

Plinth area = 300 sq.m.

Basic rate=Rs. 3,200 with base 100

Cost index in 2019 =482

Replacement rate in 2019 =3,200 x 482/100 = Rs. 15,424/m2

Replacement value = 300 x 15,424 = Rs. 46,27,200/- ... The option is “c”.

Q4.Depreciated Replacement Cost

Replacement value = Rs. 46,27,200

Year of construction of foundation= 1998

Age(2019 - 1998)=21 years

Economic life =85 years

Salvage value assumed =10%

Depreciation = 21/85 x 90 = 22.23%

Depreciation value = 0.2223 x 46,27,200 = Rs. 10,28,627

Depreciated value=46,27,200 - 10,28,627 = Rs. 35,98,573/- ... The option is “d”.* * *