(Case Studies) - Valuation

Q
Continuous Training Programme on Valuation

Tiruchirappalli - Batch 65
IBBI EXAMINATION (L & B)

ONLINE CLASSES ON CASE STUDIES
BK WEBINAR - 4
08.08.2020
Part I - Case studies - Pages 01 - 60

(Faculty : Mr. B. Kanaga sabapathy)
Part II - Case studies - Pages 01 - 34
(Faculty : Mr. R. Jayaraman)
B. KANAGA SABAPATHY
bkvaluer@gmail.com
www.bkanagasabapathy.com
ii
Reference books
Apart from the study materials provided by your RVO and also other books,
I suggest you to study the following books also :
1. Elements of valuation of immovable - Sri. R.K. Gandhi

properties Mail : kcgandhi@gmail.com
Whatsapp : 98214 - 26811
2. (i) Registered valuers examination - - B. Kanaga sabapathy

Multiple choice questions - Mail : bkvaluer@gmail.com
Practical valuation - Volume 18
(4th revision) - 970 pages
&
(ii) 1010 Quiz - Practical valuation -
Volume 22 - 262 pages
(* Soft copy - Price : 1,000 + 500)

BK WEBINAR - 4
08.08.2020
ONLINE CLASSES ON CASE STUDIES

FOR IBBI EXAMINATION
PART - I
STUDY MATERIALS
Faculty : Mr. B. Kanaga sabapathy
60 Pages
2
(This page is kept vacant intentionally)

3
BK WEBINAR - 4
BK
1.0. CERTAIN POINTS TO BE REMEMBERED WHILE ATTENDING THE CASE

STUDIES IN IBBI EXAMINATION AND A FEW USEFUL INFORMATIONS :
1. Know the difference between depreciation value and depreciated value.
2. Don’t be in a hurry to choose a wrong answer. For wrong answer, you will get
a negative mark.
3. Historic cost, original cost and intrinsic cost are different.
4. The rate of depreciation to calculate written down value (WDV) is prescribed

by Income Tax department.
5. Prepare the data first before you proceed with choosing the options.
6. Read all the questions patiently before you write the data.
7. If you want to calculate depreciation, do not stop with 2 digits. You may go
upto 3 digits in order to get an accurate answer Ex. 100/60 = 1.667.
8. You can take a scientific calculator without memory to the hall. Be thorough
to operate it especially if you want to calculate the power of any number.
9. Appearances are deceptive sometimes. Be cautious while ticking the right

options.
10. Book value and written down value are different. Book value of land remains
same always. WDV can be calculated by applying the formula.
11. The formula for linear method and written down value method are same. But
the terminology is different.
12. The cost index has been prescribed by CPWD in 1955, 1976, 1991, 2007,
2012 & 2019.
13. The cost inflation index is prescribed by CBDT.

4
14. In profit method, the income and expenses are to be calculated for annum.
15. The salvage value is normally assumed as NIL for insurance.
16. The capital gain calculations may change according to the periodical
amendments made in the Finance Act. A valuer must update his knowledge.
17. In apartment, the common area percentage is not total common areas
divided by total built up area. It is total common area divided by sum of all
plinth areas of flats.
18. The Joint venture ratio is normally denoted as Promoter : Landlord.
19. While determining the depreciation percentage, don’t assume any minimum
percentage, say 10%.
The age is 4 years, life is 60 years, salvage value - 10%.

Depreciation = (4/60) x 90 = 6% (Don’t assume a minimum depreciation of
10%)
20. Similarly, don’t round it off as a full number.

Example : (20/10) x 100 = 33.333% Not 33%
21. If you are very sure that your answer is correct and if it is not there totally in
the options, do not tick anything and get a negative mark.
22. In theory questions like “which is not considered?” - If you are doubtful above
the correct answer, adopt the elimination process. Eliminate one by one,
and try to select the remaining one.
23. The theory questions may have a small twist somewhere. Read the
question carefully twice or thrice before proceeding with answering.
24. A few tips while choosing the options :
Problem 1 :
The net income is Rs. 24,000/-. The rate of return is 12%. (The Y.P. is 8.333). What
is the capitalised value?
The options given are :

5
a) Rs. 2,00,000/- b) Rs. 2,50,000/-

c) Rs. 3,00,000/- d) Rs. 3,50,000/-
Calculation :
(i) Net income = Rs. 24,000/-

Rate of return = 12%
Capitalised value = 24,000 x (100 / 12)
= Rs. 2,00,000/-
The option is = “a”
(ii) It can also be worked out like this :
Net income = Rs. 24,000/-

Y.P. - 100 / 12 = 8.333
Capitalised value = 24,000 x 8.33
= Rs. 1,99,992/-
This answer is not there in the options given. On such occasion, you can
choose a value nearer to Rs. 1,99,992/-. Here, it is Rs. 2,00,000/-. So, you
can tick option “a”.
Problem 2 :
The age of the building is 20 years and the life is 60 years. Assuming a scrap value*
of 10%, determine the depreciation percentage.
a) 33% b) 10%
c) 20% d) 70%
Calculation :
Age = 20 years
Life = 60 years
Salvage value = 10% (This is mentioned as *scrap value
which is not right. Neglect this wrong
terminology).
Depreciation = (20 / 60) (100 - 10) = 30%
6
This answer is not there in the options given. When you are confident that
your answer of 30% is perfectly correct and no other answer is possible, do
not tick any option. Leave it as it is. It is a mistake by the examiner.
If you tick any option, you will receive negative mark, please remember.
Problem 3 :
This is a question connected with insurance. Age of the building is 15 years. Life is
60 years. What is the depreciation?
a) 22.5% b) 25%
c) 30% d) 10%
Calculation :
Age = 15 years
Life = 60 years
Salvage value assumed = 10%
Depreciation = (15 / 60) x (100 - 10) = 22.5%
The option is = “a”
DO NOT TICK “a”
In the above problem, don’t assume the salvage value as 10%, 20% etc. In
insurance, the salvage value is generally not considered.
The right calculation is
Age = 15 years
Life = 60 years
Depreciation = (15 / 60) x 100 = 25%
.
. . The option is = “b”
(Note : The above are given for overall guidance, one must take a judicious
approach while doing valuation).
7
25. Certain useful informations :
1. Depreciation percentage by Age

= (100 - salvage)
Straight Line Method (SLM) Life
r
2. Depreciation by linear method = A = P (1 - )n
100
(constant percentage method)
A = Depreciated value
P = Replacement value
r = Rate of depreciation
(100/Life)
n = Age of the building
3. If life of the building is 60 years, then

rate of depreciation r = 100 / 60 = 1.667%
4. Replacement value - Depreciation value = Depreciated value.
5. Formula for WDV (Written Down Value)
r
A = P (1 - )n
100
A = Written Down Value

P = Historic Cost
r = Rate of depreciation of building as prescribed by
Income Tax department.
n = Age
6. Normally for the purpose of insurance, the salvage value is assumed as Nil.
Total builtup area

7. FSI =
Land area
(Super) Builtup area of the flat

8. UDS (Undivided share) =
FSI
* * *
8

9
BK Webinar - 4
BK
02. IBBI EXAMINATION - CASE STUDIES
CASE STUDY 1 :
Building area is 3,200 sq.ft., age is 30 years, life is 80 years, salvage value is
20%, replacement rate of building is Rs. 2,200/sq.ft. What is the depreciation
value of building by straight line method?
a) Rs. 21,12,000/- b) Rs. 49,28,000/-

c) Rs. 70,40,000/- d) None of the above
Building area = sq.ft.

Replacement rate = Rs. /sq.ft.
Replacement value = x
= Rs.
Age = years
Life = years
Salvage value = 20%
Depreciation percentage = x (100 - 20) = 30%
Depreciation value (SLM) = x

= Rs.
Depreciated value = -
= Rs.
.
. . the option is = “ ”
CASE STUDY 2 :
Total extent of a site is 40,000 sq.ft. Total built-up area of the building is
20,000 sq.ft. What is the FSI?
10
a) 0.5 b) 1.5
c) 2.0 d) 1.0
Total built up area

FSI =
Area of the site
.
CASE STUDY 3 :
Four years back, Mr. ‘X’ bought a plot for the Rs. 50,00,000/-. In the same year,
he constructed an industrial building for Rs. 25,00,000/-. The life of the
building is 50 years. Replacement value of the building is Rs. 40,00,000/-.
Questions :
1. WHAT IS THE DEPRECIATED VALUE OF THE BUILDING BY CONSTANT

PERCENTAGE METHOD?
a) Rs. 36,89,600/- b) Rs. 16,40,250/-

r
A = P (1 - )n
100
A = Depreciated value of the building = ?

P = Replacement value = Rs. 40,00,000
r = Rate of depreciation 100/50 = 2%
n = Age = 4 years
A = (1 - )
100
11
= x( )
= x
= Rs. (1)
.
2. WHAT IS HISTORIC COST?
a) It is the replacement value as on the date of valuation.

b) It is the amount spent both for plot and building.
c) It is the depreciated value of the property as on the date of valuation.
d) The amount invested by the owner for constructing his building.
Historic cost is the amount spent by the owner at the time of construction.
.
3. WHAT IS THE WRITTEN DOWN VALUE OF THE BUILDING FOR BALANCE

SHEET PURPOSE?. THE DEPRECIATION AS PER INCOME TAX ACT IS
ASSUMED AS 10%?
a) Rs. 36,89,600/- b) Rs. 16,40,250/-

r
The formula of WDV is A= P (1 - )n
100
A = Written down value = ?

P = Historic cost (amount spent at the time of construction
Rs. 25,00,000/-)
r = Rate of depreciation = 10%
n = Age = 4 years
A = (1 - )
100
12
= x( )
= x x x x
= Rs.
.
4. WHAT IS THE BOOK VALUE OF THE PROPERTY?
a) Rs. 36,89,600/- b) Rs. 16,46,250/-

Book value of the plot = Rs.

WDV of building as on date = Rs.
Total book value = Rs.
.
Note : The formula of constant percentage method (linear method) and written
down value method are same. But the definitions are different.
* * *
CASE STUDY 4 - VALUATION BY PLOTTING SCHEME METHOD :
In a situation, subject land is located in such a place where, instances of sale

of large size plots in the locality are not available. Small sized road side
developed plots are available at the rate of Rs. 600 per sq.m. Plot is located in
developing area of town where demand for housing site exists. The subject
land is not surrounded by agricultural lands. The subject plot is of sufficiently
large size which can be divided into several small size plots. The depth of the
plot is 600 meters considerably more as compared to the road frontage of
200 meters. The guideline rate is Rs. 300/sq.m.
13
200 m
50% of 360
350 III Portion = Rs. 180/m2
600 m 60% of 600

200 II Portion
= Rs. 360/m2
100% of 600
50 I Portion = Rs. 600/m2
200 m
Road
Unit market rate = Rs. 600/sq.m.
Questions :
1. WHAT IS VALUE OF 1ST PORTION FROM ROAD SIDE IF THE PLOT IS

CONSIDERED AS 50 METRES IN DEPTH ASSUMING THE BASIC RATE?
a) Rs. 60,00,000/- b) Rs. 30,00,000/-

c) Rs. 45,00,000/- d) Rs. 1,20,00,000/-
Size of I portion = x m
Area = sq.m.
Unit rate = Rs. /m2
Value of I portion = x
= Rs. (1)
.
2. WHAT IS VALUE OF 2ND PORTION FROM ROAD SIDE IF THE PLOT IS

CONSIDERED AS 200 METRES IN DEPTH AND RATE CONSIDERED FOR 40
PER CENT LESSER THAN THE 1ST ONE IN RS.?
14
a) Rs. 72,00,000/- b) Rs. 1,44,00,000/-

c) Rs. 4,20,00,000/- d) None of the above
Size of II portion = x m
Area = sq.m.
Unit rate = 40% less then I portion
(0.6 x = /sq.m.)
Value of II portion = x
= Rs. (2)
.
3. WHAT IS VALUE OF 3RD PORTION FROM ROAD SIDE IF THE PLOT IS

CONSIDERED AS REST OF THE PLOT AND RATE CONSIDERED FOR 50 PER
CENT LESSER THAN THE 2ND ONE IN RS.?
a) Rs. 63,00,000/- b) Rs. 1,89,00,000/-

c) Rs. 1,26,00,000/- d) Rs. 2,40,00,000/-
Total depth = m
I Portion + II Portion = + = m
Depth of III Portion = - = m
Size of III portion = x m
Area of III portion = sq.m.
Unit rate = 50% less than II portion
(0.5 x = Rs. /sq.m.)
Value of III portion = x
= Rs. (3)
.
4. WHAT IS THE VALUE OF ENTIRE LAND?

15
a) Rs. 3,60,00,000/- b) Rs. 7,20,00,000/-

c) Rs. 2,04,000/- d) Rs. 3,30,00,000/-
Value of I portion = Rs.

Value of II portion = Rs.
Value of III portion = Rs.
Value of all portions = Rs. (4)
.
5. WHICH METHOD OF VALUATION IS ACCEPTED IN CASE OF HUGE PLOT AREA

TO BE VALUED?
a) Plotting scheme method b) Sales comparison method

c) Net present value method d) Transfer of development
right method
Huge plot area can be valued by plotting scheme method. (5)
.
(Note : The guideline rate is not to be considered).
More informations and examples on plotting scheme method are discussed

in the Chapter 11.20 “Elements of valuation of immovable properties”
- Mr. R.K. Gandhi
* * *
16
CASE STUDY 5 : (Case study appeared in the IBBI examination recently)
A business man purchased a plot of 1000 sq.mt. in a posh locality of a city in

the year 1987 for a price of Rs. 30,00,000. In the year 1988, he constructed a
residential bungalow having 300 sq.mt. built up floor area at ground level and
100 sq.mt. built up area at first floor level at the cost of Rs. 14,00,000.
Prevalent replacement cost of similar bungalow as on today is Rs. 30,000 per
sq.mt. Prevalent land price in the locality at present is Rs. 60,000 per sq.mt.
Age of building is 30 years and the total life of the building is 60 years.
Data :
Extent of plot = sq.m.

Year of purchase of plot =
Purchased amount = Rs.
Year of new construction =
Plinth area of the building GF = sq.m.
Built up area of the building FF = sq.m.
Cost of building GF + FF (300 + 100) = Rs.
Replacement cost = Rs. /sq.m.
Prevalent land rate = Rs. /sq.m.
Age of the building = years
Life of the building = years
Salvage value assumed =
Questions :
1. WHAT WILL BE THE DEPRECIATION AMOUNT OF THE BUNGALOW BY

ADOPTING STRAIGHT LINE METHOD OF DEPRECIATION AND CONSIDERING
SCRAP VALUE AT 10 % ?
a) Rs. 54,00,000/- b) Rs. 47,37,600/-

c) Rs. 6,00,00,000/- d) Rs. 6,66,00,000/-
Total built up area = sq.m.

Replacement rate / sq.m. = Rs.
Replacement value - 400 x 30,000 = Rs.
17
Salvage value = %
Depreciation percentage = x 90 = 45%
Depreciation amount = Rs. (1)

0.45x1,20,00,000
.
2. WHAT WILL BE THE DEPRECIATION AMOUNT OF THE BUNGALOW BY

ADOPTING CONSTANT PERCENTAGE METHOD OF DEPRECIATION?
a) Rs. 54,00,000/- b) Rs. 47,37,600/-

c) Rs. 6,00,00,000/- d) Rs. 6,66,00,000/-
Life = years
Rate of depreciation = = 1.66 %
1.66 30
Depreciation amount = [
P 1-(1-
100
) ]
= x
r n
[
P 1-(1-
100
) ] = Rs. (2)
.
3. WHAT WILL BE THE MARKET VALUE OF THE LAND AT PRESENT?
a) Rs. 54,00,000/- b) Rs. 47,37,600/-

c) Rs. 6,00,00,000/- d) Rs. 6,66,00,000/-
Extent of plot = m2
Prevalent market rate = Rs. /m2
Market value of land - 1,000 x 60,000= Rs. (3)
.
4. WHAT WILL BE THE TOTAL MARKET VALUE OF THE BUNGALOW PROPERTY

FOR THE BANK LOAN PURPOSE?
18
a) Rs. 54,00,000/- b) Rs. 47,37,600/-

c) Rs. 6,00,00,000/- d) Rs. 6,66,00,000/-
Land value - 1,000 x 60,000 =

Depreciated value of the building = x
(SLM) = Rs.
Total value - Land + building = Rs. (4)
.
5. WHAT IS THE BALANCE ECONOMIC LIFE OF THE BUILDING?
a) 30 years b) 50 years
c) 60 years d) 80 years
Total economic life of building = years

Balance economic life 60 - 30 = years (5)
.
6. WHICH OF THE FOLLOWING WILL NOT BE CONSIDERED FOR THE

ESTIMATION OF PRESENT MARKET VALUE OF ABOVE PROPERTY?
a) Depreciation b) Replacement cost

c) Current land rate d) Economic obsolescence
While estimating the present market value of the property,
1. Depreciation is to be considered.
2. Replacement cost is to be considered.
3. Current land rate is to be considered.
Economic obsolescence need not be considered. (6)
.
* * *
19
CASE STUDY 6 : (VALUATION BY LAND & BUILDING METHOD)
A few years back, Mr. ‘X’ purchased a vacant residential plot of 2,200 sq.m.
for Rs. 4,65,000/-. He constructed a building of GF = 1,300 sq.m. and FF =
1,100 sq.m. at a cost of Rs. 1 crore. The average replacement cost of the
building is Rs. 22,000/sq.m. It is a load bearing structure and life can be
assumed as 60 years. The present age of the building is 20 years. Prevailing
land market rate is Rs. 8,500/sq.m. Guideline rate is Rs. 17,000/sq.m.
Data :
Extent of plot = sq.m.

Purchased cost of plot = Rs.
Unit market rate of plot = Rs. /sq.m.
Guideline rate = Rs. /sq.m.
Area of building - GF = sq.m.
FF = sq.m.
Historic cost of the building = Rs.
Replacement rate of building = Rs.
Type of structure =
Salvage value = % (vide Q2)
Questions :
1. WHAT IS THE REPLACEMENT VALUE OF THE BUILDING?
a) Rs. 5,28,00,000/- b) Rs. 2,04,00,000/-

c) Rs. 1,00,00,000/- d) Rs. 4,08,00,000/-
Plinth area of GF = sq.m.

Built up area of FF = sq.m.
20
Total built up area of the building = sq.m.

Average replacement cost = Rs. /sq.m.
Replacement value of the building = x
= Rs. (1)
.
2. WHAT IS THE DEPRECIATION PERCENTAGE BY SLM (STRAIGHT LINE

METHOD) ASSUMING A SALVAGE VALUE OF 10%?
a) 33.33% b) 30%
c) 10% d) None of the above

Salvage value = %
Depreciation by SLM Age
= (100 - salvage)
Life
= ( - )
= (2)
.
3. WHAT IS THE DEPRECIATION VALUE OF THE BUILDING?
a) Rs. 1,75,98,240/- b) Rs. 3,69,60,000/-

Depreciation percentage = %
Replacement value of the building = Rs.
Depreciation value = x
= Rs. (3)
.
21
4. WHAT IS THE DEPRECIATED VALUE OF THE BUILDING?
a) Rs. 3,69,60,000/- b) Rs. 3,52,01,760/-

Replacement value = Rs.

Depreciation value = Rs.
Depreciated value = Rs. (4)
.
5. WHAT IS THE TOTAL VALUE OF THE PROPERTY?
a) Rs. 3,74,25,000/- b) Rs. 5,56,60,000/-

c) Rs. 1,04,65,000/- d) Rs. 7,15,00,000/-
• Extent of plot = sq.m.

Prevailing unit rate of plot = Rs. /sq.m.
Value of plot - 2,200 x 8,500 = Rs.
• Depreciated value of building = Rs.
• Value of plot and building = Rs. (5)
.
6. WHAT IS THE RATE OF DEPRECIATION OF THE BUILDING IF VALUE IS TO BE

ESTIMATED BY LINEAR METHOD (CONSTANT PERCENTAGE METHOD)?
a) 1.5% b) 1.67%
c) 1.667% d) 2%
Life = years
Depreciation percentage (r) = = % (6)
.
22
7. WHAT IS THE DEPRECIATED VALUE OF THE BUILDING BY ADOPTING

LINEAR METHOD?
a) Rs. 3,77,00,000/- b) Rs. 3,65,00,000/-

r
Formula A = P(1- )n
100
Where,
A = depreciated value = ?
P = Replacement value = Rs. 5,28,00,000/-
r = rate of depreciation = 1.667%
n = Age of the building = 20
Rate of depreciation = %
Age of the building (n) = years
Replacement value (P) = Rs.
Depreciated value = (1 - )
100
= x 0.7140
= Rs. (7)
It is nearer to Rs. 3,77,00,000/-.
.
8. WHAT IS THE BALANCE ECONOMIC LIFE?
a) 60 years b) 40 years
c) 20 years d) None of the above
Total life = years

Age = years
Further economic life = - = years (8)
.
23
9. IF THE SALVAGE VALUE IS NIL, WHAT IS THE DEPRECIATION PERCENTAGE

OF THE BUILDING BY SLM?
a) 30% b) 34%
c) 33.33% d) 33%
Age = years
Life = years
Age
Depreciation =
Life
= x = % (9)
.
10. WHAT IS THE BOOK VALUE OF THE PLOT?
a) Rs. 4,65,000/- b) Rs. 5,28,00,000/-

Book value of the plot is the amount spent by the owner at the time of purchasing
initially. It does not change for ever. Book value of plot remains same at all times.
The amount spent by Mr. ‘X’ = Rs.

for procuring the plot
.
. . The book value = Rs. (10)
.
11. WHAT IS THE BOOK VALUE OF BUILDING AS ON DATE ASSUMING THE DE

PRECIATION AS PRESCRIBED BY INCOME TAX IS 5%?
a) Rs. 1,00,00,000/- b) Rs. 3,69,60,000/-

c) Rs. 35,84,800/- d) Rs. 3,76,99,200/-
24
Book value or written down value of the building is required for balance sheet
purpose. It is calculated by the Formula
r
A = P(1- )n
100
Where,
A = Written down value = ?
P = Historic cost = Rs. 1,00,00,000/-
r = Depreciation as per = 5% (Table enclosed for
the income tax act reference)
n = Age of the building = 20 years
A
= (1 - )
100
= x( )
= x 0.35848
= Rs. (11)
.
12. WHAT IS THE TOTAL BOOK VALUE OF THE PROPERTY?
a) Rs. 40,49,800/- b) Rs. 1,04,65,000/-

Book value of plot = Rs.

Written down value of building = Rs.
= Rs. (12)
.
25
DEPRECIATION RATES AS PER I.T ACT FOR MOST COMMONLY USED ASSETS
Rates have been changed for financial year 2017-18 and onwards. Now the maximum
rate of depreciation is 40%.
S.no. Asset Class Asset Type Rate of

Depreciation
1 Building Residential buildings except hotels and 5%

boarding houses
2. Building Hotels and boarding houses 10%
3. Building Purely temporary erections such as 40%

wooden structures
4. Furniture Furniture - Any furniture / fittings including 10%

electrical fittings and air conditioners
5. Plant & Motor car, motor cycle, bike, scooter other 15%
Machinery than those used in a business of running
them on hire, Mobile phone
6. Plant & Motor buses / taxies / lorries used in a 30%

Machinery business of running them on hire
7. Plant & Computers, Laptops, computer software, 40%

Machinery Printer, Scanner, UPS and other peripheral
devices
8. Plant & Books owned by assessee, carrying on 40%

Machinery profession being annual publications

Machinery profession not being annual publications

Machinery business in running lending libraries
11. Intangible Know how, patents, copyright, trademark. 25%

Assets license, franchise or any other business
or commercial rights of similar nature
* * *
26
CASE STUDY 7 : (VALUATION BY COST INDEX METHOD)
Mr. Sharma started construction of his 300 sq.m. building in Tiruchirappalli 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
Tiruchirappalli in those years were 142, 148 and 156 respectively. The cost
index of Tiruchirappalli in 2019 with respect to the base year 1992 is 482.
Economic life of the building is 85 years.
• The question is reorganised like this for easy understanding :
1. The plinth area of the building is 300 sq.m. which is situated in

Tiruchirappalli. Economic life is 85 years.
2. Mr. Sharma started the construction in 1998 and completed in 2000.
3. In 1998, he completed 10% of construction. In 1999, he completed

30% of construction. In 2000, he completed 60% of construction.
4. The basic plinth area rate of building in Delhi as on 1992 as per CPWD
is Rs. 3,200/sq.ft. with base cost index 100 at Delhi.
5. The cost index at Tiruchirappalli in 1998 is 142. The cost index in

1999 is 148. The cost index in 2000 is 156.
6. The cost index in 2019 is 482.
7. The date of valuation is 2019.
Data :
Building area = sq.m.

Commencement of construction =
Completion of construction =
27
P.A. rate in 1992 @ Delhi = Rs. /sq.m.
Stages of construction :
1998 = %
1999 = %
2000 = %
Cost index :
1998 =
1999 =
2000 =
2019 =
Economic life of the building = years
Questions :
1. HOW MUCH EXPENDITURE MR. SHARMA MADE IN THE YEAR 1998 TOWARDS
THE CONSTRUCTION OF HIS BUILDING?
a) Rs. 8,52,480/- b) Rs. 4,08,960/-

c) Rs. 14,11,200/- d) Rs. 1,49,760/-
Plinth area = sq.m.

Plinth area rate in 1992 = with base
Cost index in 1992 =
Corresponding P.A. rate in 1998 = x =
Percentage completion in 1998 = %

P.A. rate for 30% completion = x =
Value = x
= Rs. (1)
.
28
a) Rs. 8,52,480/- b) Rs. 4,08,960/-

c) Rs. 14,11,200/- d) Rs. 1,49,760/-
Plinth area = sq.m.


Value = x
= Rs. (2)
.
a) Rs. 8,52,480/- b) Rs. 4,08,960/-

c) Rs. 14,11,200/- d) Rs. 1,49,760/-
Plinth area = sq.m.


Value = x
= Rs. (3)
.
29
4. WHAT IS THE HISTORICAL COST OF BUILDING OF MR. SHARMA?
a) Rs. 8,52,480/- b) Rs. 4,08,960/-

c) Rs. 14,11,200/- d) Rs. 1,49,760/-
Amount spent in 1998 = Rs.

Total amount spent = Rs. (4)
(This is historical cost)
... The option is = “ ”
5. 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/-
Plinth area = sq.m.

Basic rate = with base
Replacement rate in 2019 = x = Rs. /m2
Replacement value = x
= Rs. (5)
6. 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. 35,98,000/-

Year of construction of foundation=
30
Age (2019 - 1998) = years

Economic life = years
Salvage value = Not given : Assumed as Nil

Depreciation (21/85) x 100 = %
0.2471 x 46,27,200
Depreciated value = Rs.
46,27,200 - 11,43,381
The answer is not tallying with any options given.
Let us calculate the depreciated value by assuming a salvage value of 10%.
Salvage value assumed = %
Depreciation = x = %
Depreciation value = x = Rs.

Depreciated value = -
= Rs. (6)
It is nearer to Rs. 35,98,000/-
(The valuers are requested to take a judicious decision depending on the prevailing
circumstances).
7. WHAT IS THE DEPRECIATED VALUE BY ADOPTING LINEAR METHOD?
a) Rs. 36,09,216/- b) Rs. 35,98,573/-

r
Formula A = P(1- )n
100
31
Where,
A = depreciated value = ?
P = Replacement value = Rs. 46,27,200/-
r = rate of depreciation = 100/85 = 1.176%
n = Age of the building = 21 Years
A
= (1 - )
100
= x 0.7800
= Rs. (7)
.
. . The option is = “ ”
8. IN THE ABOVE QUESTION, WHAT IS THE DEPRECIATION VALUE BY LINEAR

METHOD?
a) Rs. 10,17,984/- b) Rs. 10,58,627/-


Depreciation value = -
= Rs. (8)
.
More informations and examples on cost index method are discussed in the
Chapter 14.39 “Elements of valuation of immovable properties” - Mr. R.K. Gandhi
* * *
32
CASE STUDY 8 - VALUATION OF PETROL BUNK BY PROFIT METHOD :
A client wants to purchase a petrol bunk outlet situated on the main road in
the center of town. The main road has traffic of 400 PCU (Passenger Car
Unit). For the land, the company pays the rent Rs. 5,00,000 / per annum. Total
annual income from sale of petrol and diesel and other items is Rs. 2,50,00,000.
Property tax Rs. 60,000 / 6 months. Staff salary and other out goings are
Rs. 70,000/ per month. Other annual expenses for running the business is
Rs. 1,90,00,000/-. Rate of capitalisation is 12%.
Theory :
Net income = Gross income - expenses
100
Capitalised value = Net income x
Rate of return
Data :
Ground rent paid to the owner = Rs. / annum
Income from sale of petrol = Rs. / annum

Property tax = Rs. / months
Staff salary & other out goings = Rs. / month
Other expenses = Rs. / year
Rate of capitalisation = %
Question :
1. WHAT IS THE TOTAL ANNUAL INCOME FOR THE OWNER?
a) Rs. 2,55,00,000/- b) Rs. 48,00,000/-

c) Rs. 2,00,00,000/- d) Rs. 4,00,000/-
Ground rent received from = Rs.

the company
33
Income from sale of petrol = Rs.

& diesel
Total income for the owner = Rs. (1)
.
2. WHAT IS THE TOTAL EXPENSE FOR THE OWNER?
a) Rs. 1,70,00,000/- b) Rs. 1,99,60,000/-

c) Rs. 1,00,000/- d) Rs. 1,71,10,000/-
Property tax (60,000 x 2) = Rs.

Staff salary & other out goings = Rs.
(70,000 x 12)
Other expenses for running the = Rs.
business
Total expenses = Rs. (2)
.
3. WHAT IS THE NET PROFIT FOR THE OWNER?
a) Rs. 32,90,000/- b) Rs. 35,80,000/-

c) Rs. 55,40,000/- d) Rs. 15,80,000/-
Total income = Rs.

Total expenses = Rs.
Net profit = Rs. (3)
.
4. WHAT IS YEAR’S PURCHASE (Y.P.)?
a) 8.33 b) 10
c) 8.3 d) 8.333
34
Rate of capitalisation = %
Y.P. - 100 / 12 = (4)
.
5. WHAT IS THE METHOD TO BE ADOPTED?
a) Profit method b) Land & building method

c) Rent capitalisation d) Composite rate method
method
Method = (5)
.
6. WHAT IS THE AMOUNT THE CLIENT CAN PAY TO PURCHASE THE BUNK?
a) 4.26 crores b) 4.62 crores

c) 3.58 crores d) 3.15 crores
Net profit = Rs.

Y.P. =
Capitalised value = x
= Rs.
It is nearer to = Rs. (6)
.
More informations and examples on profit method are discussed in the

Chapter 18 “Elements of valuation of immovable properties” - Mr. R.K. Gandhi
* * *
35
CASE STUDY 9 :
A mobile phone was purchased for Rs. 40,000/-. Its salvage value is Rs. 10,000.
Total life time used 50,000 hours. Used time 25,000 hours.
WHAT IS THE DEPRECIATION VALUE OF CELL PHONE?
a) Rs. 20,000/- b) Rs. 10,000/-

c) Rs. 15,000/- d) Rs. 25,000/-
Answers :
Phone purchased for = Rs.

Salvage value = Rs.
Net value = Rs.
Used time = hours
Total life = hours
Depreciation percentage = x 100 = 50%
Depreciation value = 50% of Rs.

= Rs.
.
36
CASE STUDY 10 :
The age of the building is 30 years. The life of the building is 60 years. The
replacement cost of the building as on 2018 is Rs. 6,000/-. The salvage value
is Rs. 600/-. Using straight line method, what is depreciated rate?
a) Rs. 5,400/- b) Rs. 2,700/-

c) Rs. 3,300/- d) Rs. 3,000/-
Replacement cost = Rs.

Salvage value = Rs.
Salvage value percentage = x = 10%
Age = years
Life = years
Depreciation percentage = (100 - 10)
= %
Depreciation value = 0.45 x =
Depreciated rate = -
= Rs.
.
* * *
CASE STUDY 11 - VALUATION FOR INSURANCE :
An industry owner took a standard fire policy for his 10 years old factory
building of RCC roof having an area of 1,600 sq.m. The sum insured is
Rs. 2,00,00,000/-. There was a fire in the building and the loss is estimated as
Rs. 40,00,000/-. Life of the building can be assumed as 40 years.
Replacement rate of the building is Rs. 15,000/sq.m.
37
Data :
Area of the building = 1,600 sq.m.

Age of the building = 10 years
Life of the building = 40 years
Replacement rate = Rs. 15,000/sq.m.
Sum insured = Rs. 2,00,00,000/-
Fire loss = Rs. 40,00,000/-
Questions :
1. WHAT IS THE REPLACEMENT VALUE OF THE BUILDING?
a) Rs. 2,40,00,000/- b) Rs. 2,14,20,000/-

c) Rs. 1,60,65,000/- d) Rs. 30,00,000/-
Plinth area of the building = sq.m.

Replacement rate of the building = Rs. /sq.m.
Replacement value = Rs. (1)
1,600 x 15,000
.
2. WHAT IS THE REPLACEMENT VALUE OF THE BUILDING WITHOUT THE

FOUNDATION AT 20%?
a) Rs. 2,52,00,000/- b) Rs. 1,92,00,000/-

c) Rs. 1,60,65,000/- d) Rs. 30,00,000/-
Replacement value of the = Rs.

entire building
Value of the foundation at 20% = Rs.
Replacement value less = Rs. (2)
foundation
.
38
3. WHAT IS THE DEPRECIATED VALUE OF THE BUILDING EXCLUDING

FOUNDATION?
a) Rs. 2,52,00,000/- b) Rs. 2,14,20,000/-

c) Rs. 1,44,00,000/- d) Rs. 30,00,000/-
Replacement value excluding = Rs.

foundation
Salvage value = Nil
Depreciation percentage = x = %

0.25 x 1,92,00,000
Depreciated value = Rs. (3)
1,92,00,000 - 48,00,000
.
4. WHAT WILL BE THE LOSS PAYABLE?
a) Rs. 2,52,00,000/- b) Rs. 1,44,00,000/-

c) Rs. 29,90,000/- d) Rs. 40,00,000/-
Depreciated value of the building = Rs.

excluding foundation
Sum insured = Rs.
Whether sum insured is enough? = Yes
Fire loss = Rs.
Any percentage is to be deducted = No
for inadequacy of sum insured?
.
. . The claim payable = Rs. (4)
100% of Rs. 40,00,000/-
.
39
5. IF A POLICY EXCESS OF RS. 20,000/- IS TO BE CONSIDERED, WHAT IS THE

CLAIM PAYABLE?
a) Rs. 30,10,000/- b) Rs. 1,65,00,000/-

c) Rs. 39,80,000/- d) Rs. 30,00,000/-
Claim payable = Rs.

Less policy excess = Rs.
Claim payable after deducting = Rs. (5)
the policy excess
40,00,000 - 20,000
.
6. IN THE ABOVE SUM, IF THE SUM INSURED IS RS. 72,00,000/-, THEN, WHAT IS
THE LOSS PAYABLE?
a) Rs. 20,00,000/- b) Rs. 60,00,000/-

c) Rs. 45,00,000/- d) Rs. 10,00,000/-

Sum insured = Rs.
It is under insured.
Under insurance factor = x 100 = %
.
. . Loss payable = Rs. (6)
50% of Rs. 40,00,000/-
(without considering the
policy excess)
.
7. IF RE-INSTATEMENT POLICY IS DESIRED TO BE TAKEN, WHAT WILL BE THE

SUM TO BE INSURED?
a) Rs. 2,40,00,000/- b) Rs. 2,14,20,000/-

c) Rs. 1,60,65,000/- d) Rs. 1,65,00,000/-
40
Under reinstatement policy, the building can be insured for the total value
and if so, 100% of loss will be compensated.
Building can be insured = Rs. (7)

1,600 x 15,000
.
8. WHICH PERIL IS NOT COVERED UNDER STANDARD POLICY?
a) Impact damage b) STFI (Storm, Typhoon,

Flood, Inundation)
c) Fire d) Earthquake
In standard policy,
a) Impact damage is covered.
b) Storm, Typhoon, Flood and Indunation are covered.
c) Fire is covered.
But ....................... is not covered. (8)

.
9. WHETHER THE INSURANCE CAN BE TAKEN FOR THE FACTORY LAND ALSO?
a) No b) Yes
c) May be, but premium d) None of the above
will be more
Only a building can be insured. (9)

Not land.
.
More informations and examples on insurance are discussed in the

Chapter 25 “Elements of valuation of immovable properties” - Mr. R.K. Gandhi
* * *
41
CASE STUDY 12 - VALUATION FOR CAPITAL GAINS :
On 10.02.2005, a property was acquired by Mr. X for 8.08 lakhs. In August

2010, improvements were made for 12.06 lakhs. On 29.09.2018, the property
was sold to 83 lakhs. (Cost inflation index for 2004 - 05 = 113; 2010 - 11 = 167;
2018 - 19 = 280).
Data :
Date of acquisition = 10.02.2005 (2004 - 05)

Cost of acquisition (02/2005) = Rs. 8,08,000/-
Cost of improvements (09/2010) = Rs. 12,06,000/- (2010 - 11)
Date of transfer = 29.09.2018 (2018 - 19)
Sale consideration = Rs. 83,00,000
Cost inflation index 2004 - 05 = 113
Questions :
1. WHAT IS THE INDEXED COST OF ACQUISITION?
a) Rs. 20,02,124/- b) Rs. 20,22,036/-

c) Rs. 40,24,160/- d) Rs. 42,75,840/-
Cost of acquisition (02/2005) = Rs.

C.I.I. for 2004 - 05 =
Date of transfer =
C.I.I. for 2018 - 19 =
Indexed cost of acquisition = x
= Rs. (1)
.
42
2. WHAT IS THE INDEXED COST OF IMPROVEMENT?
a) Rs. 20,02,124/- b) Rs. 20,22,036/-

c) Rs. 40,24,160/- d) Rs. 42,75,840/-
Cost of improvements (09/2010) = Rs.

C.I.I. for 2010 - 11 =
Date of transfer =
C.I.I. for 2018 - 19 =
Indexed cost of improvements = x
= Rs. (2)
.
3. WHAT IS THE TOTAL INDEXED COST OF ACQUISITION & IMPROVEMENT?
a) Rs. 20,02,124/- b) Rs. 20,22,036/-

c) Rs. 40,24,160/- d) Rs. 42,75,840/-
Indexed cost of acquisition = Rs.

Indexed cost of improvements = Rs.
Total = Rs. (3)
.
4. WHAT IS THE TAXABLE CAPITAL GAIN?
a) Rs. 20,02,124/- b) Rs. 20,22,036/-

c) Rs. 40,24,160/- d) Rs. 42,75,840/-
Sale consideration = Rs.

Total indexed cost = Rs.
Taxable capital gain = Rs. (4)
.
43
5. WHAT IS THE CAPITAL GAIN TAX TO BE PAID BY MR. ‘X’ @ 20%?
a) Rs. 8,55,168/- b) Rs. 17,10,336/-

c) Rs. 25,65,504/- d) Rs. 34,20,672/-
Taxable capital gain = Rs.

Tax rate = %
Tax = x
= Rs. (5)
.
6. WHAT IS THE TYPE OF CAPITAL GAIN AS ON JULY 2020?
a) Short term capital gain b) Long term capital gain

c) Neither short term nor d) None of the above
long term
Date of acquisition =
Date of transfer =
The period of enjoyment is more =
than 36 months?
.
. . It is a long term capital gain. (6)
.
7. WHAT IS THE CAPITAL GAIN TAX PERCENTAGE FOR COMPANIES?
a) 40% b) 30%
As per the latest finance act,

the capital gain percentage for individuals, A.O.P. & companies is only 20%.
.
44
8. WHAT IS THE CAPITAL GAIN TAX PERCENTAGE FOR A.O.P.?
a) 40% b) 30%
c) 50% d) 20%
As per the latest finance act,

the capital gain percentage for Association of Persons is only 20%.
.
Note :
(i) The cost inflation indices from 2001 - 02 to 2019 - 20 are furnished in
the Table attached.
(ii) More informations and examples on capital gains are discussed in the
book “Practical valuation - Volume 21 - Capital gains”
- Mr. B. Kanaga sabapathy
* * *
45
COST INFLATION INDEX FOR COMPUTING CAPITAL GAIN

(Prescribed by CBDT)
COST INFLATION INDICES FROM 2001 - 02 ONWARDS
Financial Year Cost Inflation Index
2001 - 02 100
2002 - 03 105
2003 - 04 109
2004 - 05 113
2005 - 06 117
2006 - 07 122
2007 - 08 129
2008 - 09 137
2009 - 10 148
2010 - 11 167
2011 - 12 184
2012 - 13 200
2013 - 14 220
2014 - 15 240
2015 - 16 254
2016 - 17 264
2017 - 2018 272
2018 - 2019 280
2019 - 2020 289
* * *
46
CASE STUDY 13 - (IBBI) :
Gift received in the year 2000, a flat of carpet area of 80 sq.m. previously
purchased by his uncle Mr. ‘X’ in 1981 for a price of Rs. 2,40,000/-. Flat was
transferred in the name of A in the year June 2001. Assessee started using
the flat in 2000 only. In 2005, he carried out substantial improvement works
inside the flat by spending a total sum of Rs. 15,00,000/-.
Flat was sold by A in the month of February 2018 for a total price of
Rs. 2,40,00,000. Prevailing rate of similar ownership flats in the locality in
April 2001 was Rs. 40,000/sq.m. C.I.I. for 2001 - 02, 2005 - 06 & 2017 - 18 are
100, 117 & 272.
* * *
For the purpose of easy understanding, this case study can be read like this:
1. In 1981, Mr. ‘X’ purchased a flat for Rs. 2,40,000/-. The carpet area of
the flat is 80 sq.m.
2. In June 2001, the donor Mr. ‘X’ has transferred his flat to Mr. ‘A, the
donee’ as a gift.
3. In 2005, Mr. ‘A’ has made improvements in the flat at a cost of

Rs. 15,00,000/-.
4. In 02/2018, Mr. ‘A’ sold this flat for Rs. 2,40,00,000/- after paying
society transfer charges of Rs. 50,000/- and a brokerage charge of
Rs. 1,00,000/-.
5. The prevailing rate of flat as on 04/2001 is Rs. 40,000/sq.m. of carpet

area.
6. C.I.I. for 2001 - 02 - 100

C.I.I. for 2005 - 06 - 117
C.I.I. for 2017 - 18 - 272
* * *
47
Solution :
The property was sold on Feb 2018. (That is, sale transaction was after 01.04.2017).
New indices are to be adopted. The donee Mr. A has to pay the capital gains. For
the purpose of indexed cost of acquisition, fair market value of the flat as on
01.04.2001 is to be ascertained.
Questions :
1. WHAT IS THE INDEXED COST OF ACQUISITION?
a) Rs. 87,04,000/- b) Rs. 34,87,179/-

c) Rs. 1,21,91,179/- d) Rs, 1,23,41,179/-
Flat was purchased by Mr. ‘X’ in = - Rs.

Flat was gifted to Mr. ‘A’ in = - sq.m.
Flat was sold by Mr. ‘A’ in = - Rs.
For the purpose of computing capital gain, the FMV as on 01.04.2001 is to

be determined since the property was acquired in 1981.
Area of the flat = sq.m.

Rate prevailing in 2001 as given = Rs. /sq.m.
.
. . Value of the flat as on 2001 = x
= Rs.
Cost inflation index in 2001 =
.
. . Indexed cost of acquisition = x
= Rs. (1)
.
48
2. WHAT IS THE INDEXED COST OF IMPROVEMENTS?
a) Rs. 87,04,000/- b) Rs. 34,87,179/-

c) Rs. 1,21,91,179/- d) Rs, 1,23,41,179/-
Cost of improvement made in 2005 = Rs.

.
. . Indexed cost of improvements in 2018= x
= Rs. (2)
.
3. WHAT IS THE TOTAL INDEXED COST OF ACQUISITION AND INDEXED COST

OF IMPROVEMENTS?
a) Rs. 87,04,000/- b) Rs. 34,87,179/-

c) Rs. 1,21,91,179/- d) Rs, 1,23,41,179/-

Total = Rs. (3)
.
4. WHAT WILL BE THE TOTAL DEDUCTION PERMISSIBLE TO THE ASSESSEE

WHILE COMPUTING CAPITAL GAIN FROM THE SALE PRICE OF FLAT UNDER
CAPITAL GAIN TAX PROVISION (IF ASSESSEE HAS SPENT RS. 1,00,000/- FOR
THE BROKERAGE CHARGES AND RS. 50,000 PAID TO THE SOCIETY FOR
TRANSFER CHARGES)
a) Rs. 87,04,000/- b) Rs. 34,87,179/-

c) Rs. 1,21,91,179/- d) Rs, 1,23,41,179/-
49

Expenses incurred while = Rs.
transferring
Society transfer charges: Rs. 50,000
Brokerage : Rs. 1,00,000

Rs.
Total deduction = Rs. (4)

.
5. WHAT IS THE CAPITAL GAIN?
a) Rs. 1,16,58,821/- b) Rs. 23,31,764/-

c) Rs. 46,63,528/- d) Rs. 34,97,646/-
Sale consideration = Rs.

Less (brokerage+society transfer)= Rs.
Net sale consideration = Rs.
Less indexed cost of acquisition = Rs.
+ improvements
Capital gain = Rs. (5)
.
6. WHAT WAS THE TOTAL CAPITAL GAIN TAX @ 20% RATE IF ASSESSEE (A)
HAS NOT INVESTED SALES PROCEEDS ANYWHERE?
a) Rs. 34,97,646/- b) Rs. 23,31,764/-

c) Rs. 46,63,528/- d) No tax
Capital gain = Rs.

Tax rate = %
Capital gain tax = x
= Rs. (6)
.
50
7. WHETHER THE ASSESSEE (A) IS LIABLE FOR PAYING CAPITAL GAINS?
a) May or May not b) No

c) Yes d) None of the above
Yes, the assessee is liable for paying capital gains. (7)
.
8. WHICH OF THE FOLLOWING STATEMENT IS FALSE?
a) Cost of acquisition to the assessee as on 01.04.2001 is Rs. 2,40,000.

b) Capital gain tax would be levied at the rate of 20%.
c) The assessee is entitled to deduct indexed cost of improvement.
d) The assessee is liable to pay capital gain tax.
.
• Capital; gain tax will be 20%. . . ‘ ’ is right.
• The assessee is entitled to deduct indexed cost of improvement (and also

.
indexed cost of acquisition and brokerage charges etc... . . ‘ ’ is right.
.
• The assessee is liable to pay capital gain tax. . . ‘ ’ is right.
• Cost of acquisition as on 01.04.2001 to assessee is Rs. 32,00,000/- (and

.
not Rs. 2,40,000/-). . . ‘ ’ is false.
.
9. WHICH OF THE FOLLOWING STATEMENT IS TRUE?
a) Cost of acquisition as on 01.04.2001 to the assessee is Rs. 32,00,000.

b) Cost of acquisition as on 01.04.2001 to the assessee is Rs. 2,40,000.
c) The assessee is entitled to deduct indexed cost of improvement only.
d) The assessee is not liable to pay in the matter since it was received
by him as gift.
51
(b) Cost of acquisition to the assessee is only Rs. 32,00,000/- and not
.
Rs. 2,40,000/-. . . ‘ ’ is not true.
(c) The assessee is entitled to deduct indexed cost of improvement, indexed

.
cost of acquisition and also expense like brokerage charge, etc. . . ‘ ’ is not
true.
(d) The assessee is liable to pay tax though the propety was received as a
.
gift. . . ‘ ’ is not true.
(a) Flat area = sq.m.

Value as on 01.04.2001 = Rs. /sq.m.
.
. . Cost of acquisition = x
= Rs.
.
..‘ ’ is true.
.
10. WHETHER INDEXATION IS PERMISSIBLE FOR SHORT TERM CAPITAL GAIN?
a) No b) Yes
c) May or May not d) Not applicable
The option is = “ ”
* * *
Note :
1) As per the provisions of the Income Tax Act - in case of gift,

cost of acquisition shall be cost to donor. In this case, the
donor acquired the flat in the year 2000 for Rs. 2,40,000/-.
2) Mr. A is the owner of the flat at the time of selling and he

enjoys the gain. Therefore he is the assessee and he has to
pay the capital gains.
52
CASE STUDY 14 :
A house was constructed in 1993 at a cost Rs. 20,00,000/-, What is the value
in the year 2000 by cost index method of CPWD?
Index in 1993 = 244;

Index in 2000 = 447.
a) Rs. 20,00,000 x (447 - 244) b) Rs. 20,00,000 x (244 / 447)

c) Rs. 20,00,000 x (244 + 447) d) Rs. 20,00,000 x (447 / 244)
Cost of the building in 1993 = Rs.

Value of the building in 2000
= x
by applying CPWD cost index
.
* * *
CASE STUDY 15 - VALUATION OF APARTMENT :
Mr. ‘X’ is owning a plot of 10,000 sq.ft. The prevailing market rate of plot is
Rs. 9,000/-. The guideline rate is Rs. 12,000/-. He wants to construct a
residential apartment building of 4 floors and he approaches a promoter. The
promoter has come out with a proposal to develop 10 flats of 900 sq.ft. and 10
flats of 600 sq.ft. The present construction cost is Rs. 2,500/-. The promoter’s
profit is 15%.
Data :
Extent of plot = 10,000 sq.ft.

Market rate of plot = Rs. 9,000/sq.ft.
53
Guideline rate = Rs. 12,000/sq.ft.

Builtup area of flats = 10 nos. of 900 sq.ft. &
10 nos. of 600 sq.ft.
Promoter’s profit = 15%
Questions :
1. WHAT IS FSI?
a) 1.5 b) 0.67
c) 2.0 d) None of the above
Builtup area of 10 flats - 10 x 900 = sq.ft.

Builtup area of 10 flats - 10 x 600 = sq.ft.
Total builtup area = sq.ft.
Plot extent = sq.ft.
Total builtup area
FSI = = = (1)
Plot area
.
2. WHAT IS UDS (UNDIVIDED SHARE) OF LAND FOR 900 SQ.FT. OF SUPER BUILT
UP AREA OF FLAT?
a) 400 b) 600
c) 200 d) None of the above
Super builtup area = sq.ft.

FSI =
Area of the flat
UDS = = = sq.ft. (2)
FSI
.
54
3. WHAT IS UDS OF LAND FOR 600 SQ.FT. OF SUPER BUILT UP AREA OF FLAT?
a) 600 b) 200
c) 400 d) None of the above
Super builtup area = sq.ft.

FSI =
Area of the flat
UDS = = = sq.ft. (3)
FSI
.
4. WHAT IS THE COMMON AREA PERCENTAGE ASSUMING THE SUM OF ALL

COMMON AREAS IN ALL FLOORS IS 2,500 SQ.FT.?
a) 25% b) 10%
c) 15% d) 20%
Total super builtup area of all = sq.ft.

20 flats
Sum of all common area = sq.ft.
Builtup area of flats alone = sq.ft.
excluding common area
15,000 - 2,500
Common area percentage = x
= % (4)
.
5. WHAT IS THE COMPOSITE RATE OF THE FLAT?
a) Rs. 9,775/- b) Rs. 8,500/-

c) Rs. 10,000/- d) None of the above
Market rate of plot = Rs. /sq.ft.

FSI =
55
Land component 9,000/1.5 = Rs.

Building unit rate = Rs.
Land + Building = Rs.
Promoter’s profit 15% = Rs.
Composite rate - 8,500 x 1.15 = Rs. (5)
.
6. WHAT IS THE JOINT VENTURE RATIO (PROMOTER : LANDLORD)?
a) 71 : 29 b) 29 : 71
c) 50 : 50 d) None of the above
Land rate = Rs.

FSI =
Land component - 9,000/1.5 = Rs. (Landlord)
Building component = Rs. (Promoter)
Land + Building = Rs.
Promoter’s share x 100 = %
Landlord’s share x 100 = %
It is the normal procedure to mention the joint venture ratio as promoter : landlord.
i.e. Joint venture ratio is : (6)
.
(Note : The guideline rate cannopt be considered while arriving at the

composite rate or to find the joint venture ratio. This data is not
relevant to these questions).
7. THE COMPOSITE RATE IS RS. 10,200/-. THE PROMOTER’S PROFIT IS 20%.

BUILDING RATE IS RS. 2,500/-. FSI = 1.5. WHAT IS THE PREVAILING LAND
UNIT RATE?
56
a) Rs. 8,850/- b) Rs. 5,660/-

c) Rs. 9,000/- d) Rs. 10,000/-
Composite rate = Rs.

Promoter’s profit = %
Land + Building component
= = Rs.
excluding profit
Deduct building rate = (-) Rs.
.
. . Land component = - = Rs.
FSI =
Land unit rate = x = Rs. (7)
.
More informations and examples on apartments are discussed in the book

“Practical valuation - Volume 09 - Valuation of Apartments”
- Mr. B. Kanaga sabapathy
* * *
CASE STUDY 16 - BELTING METHOD :
A vacant plot of 50’ x 200’ is to be valued by belting method. The prevailing

market rate of nearby plot 50’ x 60’ is Rs. 600/-. Guideline rate is Rs. 1,200/
sq.ft.
50’
50’ 1/2 III
90’ 2/3 II
200’
60’ 100% I
50’
Road
57
Questions :
1. WHAT IS THE VALUE OF FIRST BELT HAVING A DEPTH OF 60’ ADOPTING

100% OF THE UNIT RATE?
a) Rs. 18,00,000/- b) Rs. 36,00,000/-

c) Rs. 43,50,000/- d) Rs. 60,00,000/-
Standard depth is assumed as 60’.

Size of I belt = x
Extent of I belt = sq.ft.
Unit rate 100% of Rs. 600 = Rs. /sq.ft.
Value of I belt - 3,000 x 600 = Rs. (1)
.
2. WHAT IS THE VALUE OF SECOND BELT HAVING A DEPTH OF 90’ BY

ADOPTING TWO THIRD OF THE UNIT RATE?
a) Rs. 36,00,000/- b) Rs. 18,00,000/-

c) Rs. 43,50,000/- d) Rs. 60,00,000/-
Size of II belt = x
Extent of II belt = sq.ft.
Unit rate 2/3 x 600 = Rs. /sq.ft.
Value of II belt - 4,500 x 400 = Rs. (2)
.
3. WHAT IS THE VALUE OF THE THIRD BELT HAVING A DEPTH OF 50’ BY

ADOPTING 50% OF THE UNIT RATE?
a) Rs. 18,00,000/- b) Rs. 15,00,000/-

c) Rs. 7,50,000/- d) Rs. 43,50,000/-
Size of III belt = x

58
Extent of III belt = sq.ft.

Unit rate 50% of Rs. 600 = Rs. /sq.ft.
Value of III belt - 2,500 x 300 = Rs. (3)
.
4. WHAT IS THE TOTAL VALUE OF PLOT 50’ X 200’?
a) Rs. 18,00,000/- b) Rs. 87,00,000/-

c) Rs. 7,50,000/- d) Rs. 43,50,000/-
Value of I belt = Rs.

Value of II belt = Rs.
Value of III belt = Rs.
Total = Rs. (4)
.
5. WHERE THE BELTING METHOD CAN BE APPLIED?
a) Where width is less and depth is more

b) When width is more and depth is less
c) When the plot has two roads
d) None of the above
Belting method can be applied for plots having less width alutting the main road
and more depth. (5)
.
6. IN THE CASE OF BUILDING WHERE THE WIDTH IS 50 M AND DEPTH OF

200 M, WHETHER BELTING METHOD CAN BE APPLIED?
a) Yes b) Cannot be applied

c) Can be applied d) None of the above
59
The belting method can be applied for land and not for the building. (6)`
.
7. WHILE CERTIFYING THE MARKET VALUE OF BELT SHAPED PLOTS FOR

COLLATERAL SECURITY PURPOSES, WHICH IMPORTANT FACTOR IS
NECESSARILY TO BE CONSIDERED?
a) Unit rate of land b) Drawing approval

c) Marketability and enforceability d) Location
Unit rate of land, drawing approval (if the building is proposed to be constructed)
and location are certainly the factors affecting the value. But the most important
factor for security purposes is “Marketability and enforceability. (7)
.
8. THE UNIT RATE FOR BELT SHAPED PLOT IS ALWAYS LESS WHEN COMPARED
TO REGULAR SHAPED PLOTS?
a) Always less b) Always more

c) There is no value d) That depends upon
“demand”
The unit rate and the value mainly depends upon the “demand”. (8)
.
* * *
60

BK WEBINAR NO.4
08th AUGUST 2020
PART - II
Case Studies
Faculty: Mr R Jayaraman
Jaya_r54@yahoo.com
1
PART II
DEPRECIATION METHOD EXAMPLES & VALUATION OF TENANTED PROPERTIES
Methods of Calculating Depreciation
There are several methods of a calculating depreciation. Some of these are arbitrary whereas others
are based on theory. The methods have been divided into two broad heads: a) Non interest methods
b) Methods based on interest theories
1. Good-as-new assumption method: the assumption that the assets never depreciate since the
assets are well maintained, its service efficiency and output capacity are practically undiminished
are assumed as good as new. Obviously, this assumption is entirely erroneous and has no basis.
2. Direct appraisal method: It is assumed that a valuer's intuition can decide arbitrarily, after
inspection and without reasoning, giving an ad-hoc depreciation without applying any method. This
method is arbitrary having no basis and will not stand in a court of law.
3. Arbitrary lump sum method: this method now practically abandoned; many enterprises make
arbitrary lump sum allocations as expense for depreciation. This method also has no basis.
4.Depreciation as a percentage of revenue: Estimating cost depreciation as a percentage of revenue

involves the same motive as found in the arbitrary lump sum method. The percentage of gross
revenue method seems not to have been used much.
5.Sum of digits method: This method is also known as the sum of the years' digits method. The sum
of the years' digits method is an arbitrary method of allocation in which the depreciation base is held
constant and the yearly rate decreased. As with the declining balance method, the result is to
allocate the larger amount of depreciation to the first year and to decrease the amount each
succeeding year. The method is difficult to apply to groups of units, and because the declining
balance method achieves similar results with greater ease and flexibility.
6. Declining balance method: This method is also known as constant or equal percentage method
of depreciation. The constant percentage method is referred to as the linear method. TOTAL
Depreciation = (1−(1 − ) m): rd = Rate of Depreciation = 1/N, M = BUILDING AGE, N = TOTAL
LIFE. In this case, no scrap value is assumed.
In accounting terms, depreciation is used, for writing off the value of the asset over its useful life. It
is the decrease in the value of the fixed asset due to use, time period and technological
obsolescence.
R JAYARAMAN REGISTERED VALUER – BK WEINAR AUGUST 08TH 2020

2
Reducing Balance Method charges depreciation at a higher rate in the earlier years of an asset. The
amount of depreciation reduces as the life of the asset progresses.
Depreciation per annum = (Net Book Value - Residual Value) x Rate%
Where: Net Book Value is the asset's net value at the start of an accounting period. It is calculated
by deducting the accumulated (total) depreciation from the cost of the fixed asset. Residual Value
is the estimated scrap value at the end of the useful life of the asset. Rate of depreciation is defined
according to the estimated pattern of an asset's use over its life term.
7. Straight line depreciation method: this method allocates the depreciable base of a property unit
uniformly throughout its service life except when the estimate of service life is changed. depreciation
per cent D is calculated as:
D= (Total life - Future life) x (100% less salvage value)

Total life
This is a simple equation which is used for estimating depreciation of existing buildings. For
estimating depreciation by this method, the total life, future life and percentage salvage value are
necessary. This method Estimation of the Total Life of the Structure. There are no fixed rules for
estimating the lives of various types of structures which depend upon many factors such as quality
of construction, maintenance, etc.
This fixed percentage depreciation method is more widely used in depreciation calculations than
any other. It is the one method most generally used for determining depreciation for tax purposes
and for profit and loss financial statements. It is the method prescribed by most agencies.
Accounting principles require companies to depreciate its fixed assets using this method. cost of
fixed asset is reduced uniformly over useful life of asset. Since depreciation expense charged to
income statement in each period is same, the carrying amount of the asset on balance sheet
declines in a straight line.

3
Question 1.
It is a 20 years old load bearing structure of 1275 sqft of Plinth area. Total Life of the building is 60
years. What is the depreciated value of the building by adopting straight line method if Replacement
rate is Rupees1,650/sq.ft. with a Salvage value of 10%?
a) Rs. 16,83,000 b) Rs. 14,72,625
c) Rs. 21,03,750 d) Rs. 13,72,625
Solution:
Method to be adopted = straight line method
Plinth area of the building = 1275 sqft
Age of the building = 20 years
Total Life of the building = 60 years.
Replacement rate = Rs 1,650/sq.ft
Salvage value = 10%
Replacement value of the building = 1275 x Rs 1650 =Rs 21,03,750
Depreciation percentage = 20 / 60 x (100%-10%)= 30%
Depreciated value of the building = Rs 21,03,750x (100% - 30%)
= Rs 14,72,625 (Ans: b)
Question 2.
It is a load bearing structure. Age is 5 years. Life is 60 years. What is the depreciation by constant
percentage method?
a) 9.18% b) 10.38%
c) 11.38% d) 8.20 %
Solution
Method to be adopted = constant percentage method
Age = 5 years
Life = 60 years
Depreciation formula = 1- (1-(R/100))n
= R =100/60 = 1.67
R = Depreciation Rate
= 1 - (1- (1.67/100))5
= (100 / total life)
= 1 - (0.983)5
n = age
= 1- 0.918 = 0.082
= 8.20% (Ans: d)

4
Question 3
If the machinery costing Rs. 18,000 is sold after 2 years for Rs. 16,000. The depreciation rate is 10
percent per annum on SLM method, then the profit or loss from sale of machine is
a) Rs. 3,600 (Profit) b) Rs. 1600 (loss)
c) Rs. 1600 (profit) d) No profit no loss
Solution:
Machine cost = Rs 18,000
Depreciation rate = 10%
No. of years = 2 years
Method to be adopted Straight line method
Depreciation = Rs 18,000 x 2 years x 10%
= Rs 3600
Depreciated value = Rs 18000 - Rs 3600
= Rs 14,400
Sale value = Rs 16,000
Profit on sale = Rs 16,000 – Rs 14,400
= Rs 1600 (Ans: c)
Question 4.
The W.D.V of an asset after three years of depreciation on the reducing balance method @ 10
percent p.a. is Rs. 36,450. What was its original value?
a) Rs. 40,000 b) Rs. 50,000
c) Rs. 45,000 d) Rs. 70,250
Solution;
Depreciation method to be adopted = Written Down Value method
Rate of Depreciation = 10%
After 3 years the asset value := Rs 36,450
Formula = C x (1-d) n
:=C x (1-0.1) 3 = Rs 36,450
Capital value = Rs 36,450 / (1-0.1) 3
= Rs 50,000 (Ans: b)

5
Question 5
A machine was purchased for Rs. 1,00,000/- @ 15% depreciation of SLM. What is the written
down value after 2 years?
a) Rs. 70,000/- b) Rs. 80,000/-
c) Rs. 60,000/- d) Rs. 90,000/-
Solution:
Depreciation for 1 year by Straight line method = 1,00,000 x 0.15
Depreciation amount = Rs. 15,000/year
Depreciated value after 1 year = 1,00,000 - 15,000 = Rs. 85,000/-
Depreciated value after the second year = 85,000 - 15,000
= Rs. 70,000/-
Written down value after 2 years = Rs. 70,000/- (Ans: a)
Question 6
Total age of building 4 years. After four years the depreciated value is equal to 24% of the
cost. Find out the % of depreciation (near to answer) by WDV method?
a) 24 b) 25
c) 30 d) 35
Solution;
Rate of Depreciation = Not known
After 4 years the asset value = 24% of the cost value
Depreciation Formula = (1-d) n
= (1- d) 4 = 24%
Depreciation Percentage = 24% / (1- d) 4
(1-d) = (24%)¼ = 0.699 = 0.70
Depreciation = (1.00 - 0.70) = 0.30 = 30% (Ans: c)
Question 7.
‘A’ purchased a mine for Rs 2,50,000 minerals in the mine were expected to be 5,00,000 tonnes.
In the first year, 50,000 tonnes of minerals were used. What is the depreciation for the first year?
a) Rs 20000 b) Rs 25000
c) Rs 10000 d) Rs 15000

6
Solution:
Mine purchase cost = Rs 2,50,000
Mine mineral worth = 5,00,000 tonnes
First year production = 50,000 tonnes
Production %age for 1st year = 50000 / 5,00,000 ton = 10%
Depreciation % age for 1st year = 10%
Depreciation amount for 1st year = Rs 2,50,000 x 10%
= Rs 25,000 (Ans: b)
Question 8.
Cost of machine Rs. 1,00,000/-, scrap value Rs. 10,000/-, life 4 years, what will be the amount of
depreciation according to sum of years’ digit method in the first year.
a) Rs. 40,000/- b) Rs. 45,000/-
c) Rs. 36,000/- d) Rs. 38,000/-
Note: The life period, scrap value can be changed

Solution:
Net cost value = Rs 1,00,000 – scrap value Rs 10,000 = Rs 90,000
Depreciation value in the first year = 90, 000 x 4/10 = Rs 36,000 ( Ans: c)
year Net cost value Residual life Depreciation Depreciation Net Book
fraction value value
1 90,000 4 4/10 36,000 54,000
2 90,000 3 3/10 27,000 27,000
3 90,000 2 2/10 18,000 9,000
4 90,000 1 1/10 9,000 -
Total sum of years’ digit 4+3 +2+ 1= 10
Question 9.
6. A machine was purchased for Rs 20,000. At the end of 5th year by uniform depreciation method
by declining in a straight-line form, the carrying value of the asset works out to Rs 5,000. What is
the depreciation amount by uniform depreciation method by declining in a straight-line form?
a) Rs 2,000 b) Rs 2,500
c) Rs 3,000 d) Rs 4,000
Note: The life period, carrying value can be changed

7
Solution:
Depreciation amt = Rs 20,000 - Rs 5,000 = Rs 15000 / 5 years = Rs 3,000 (Ans: c)
Net Value Depreciation Carrying value

Purchase date - Rs 20,000
1st year Rs 3,000 Rs 17,000
2nd year Rs 3,000 Rs 14,000
3rd year Rs 3,000 Rs 11,000
4th year Rs 3,000 Rs 8,000
5th year Rs 3,000 Rs 5,000
Question 10.
A machine was purchased for Rs 20,00,000. The life of the machine is 3 years. The depreciation
will be charged at 50% every year, with a residual value of Rs 5,00,000. At the 3rd year what will
be Net Book Value by Reducing Balance Method?
a) Rs 7,50,000 b) Rs 8,75,000
c) Rs 3,75,000 d) Rs 5,00,000
Note: This question is for 3rd year end. The question can be changed for 2nd year end
also. The life period may be also changed
Solution: Rs 8,75,000 (Ans b)

Year Net book value Residual Depn Depreciation Accumulated
value %age Amount Depreciation
1 Rs 20,00,000 Rs 5,00,000 50% Rs 7,50,000 Rs 7,50,000
2 Rs 12,50,000 Rs 5,00,000 50% Rs 3,75,000 Rs 11,25,000
3 Rs 8,75,000 Rs 5,00,000 50% Rs 3,75,000 Rs 15,00,000
Question 11.
Factory building has 1200 S.M. built-up area. Plot are is 2000 S.M. Building is 25 years old and total
life is 50 years. Replacement cost today is Rs. 25000 per S.M. industrial plot is available for Rs.
8000 per S.M. which of the following is the fair sale price (ignoring salvage) for the property?
a) Rs 46000000 b) Rs 31000000
c) Rs 16 000000 d) Rs 18400000

8
Solution:
Plot = 2000 sqm
Building = 1200 sqm
Building Age = 25 years
Total life = 50 years
A. Land value = 2000 sqm x Rs 8000 per sqm = Rs 1,60,00,000
B. Building value = 1200 sqm x Rs 25,000 per sqm = Rs 3,00,00,000
Depreciated value = Rs 3,00,00,000 x 25/50 = Rs 1,50,00,000
Fair sale price (Rs 1,60,00,000 + Rs 1,50,00,000) = Rs 3,10,00000 (Ans b)
Question 12.
An assessee has spent Rs. 1,20,00,000 in his new building in the year 2014. What will be the written
down value of the above building as on 2019 assuming a rate of depreciation as 10%? This is
required for preparing balance sheet for IT purpose.
a) Rs. 87,48,000 b) Rs. 70,86,000
c) Rs. 97,20,000 d) Rs. 78,60,000
Solution;
Rate of Depreciation = 10%
Building construction cost as on 2014 = Rs 1,20,00,000
Building construction year = 2014
Building Depreciated cost to be determined = 2019
Number of years depreciation required = 5 years
Depreciation Formula = (1-d) n = (1- 10%)5 = 59.05%
written down value of the building as on 2019 = Rs 1,20,00,000 x 59.05%
= Rs 70,86,000 (Ans b)
Question 13.
A vacant plot taken on lease for 30 years. The lessee has constructed a building in the plot. As per
the lease terms, the lessee has to surrender the vacant plot. What will be the depreciation
percentage after 20 years? The life of RCC Framed structure is 80 years.
a) 33.33% b) 66.66%
Solution
Total life of the building = 80 years as reported

9
It is mentioned in the question, that the lessee has to surrender the vacant plot after demolishing
the building after expiry of lease period. Hence, the building life is restricted to 30 years.
Legal life of the building = 30 years
Depreciation percentage after 20 years = 20 / 30 = 66.66% (Ans b)
Note: Life of the building is termed as legal life (life due to legal constraints). If the lease term is with
renewable clause for further period then legal life will be extended to the lease life as per renewable
clause
Question 14.
A fully developed building in a plot has a total of 4 floors. Total plot area is
1,000 sq.m. and total built up for area of the building is 250 sq.m / per floor.
Permissible FSI is 1.00. There are 4 tenants per floor and tenants of lower 2
floors pay a rent of Rs. 750 / month / tenement. which includes property tax.
Top 2 floors are occupied by the owners of the property itself.
Total property taxes are Rs. 25,000 / 6 months for 4 floors.
Tenant’s rent includes 50% of total tax, Non - agricultural (N.A.) tax of the plot is
Rs. 800 / year and building insurance premium is Rs. 1,000 / year.
Assume repair cost at 6% of the gross rent and collection & management charges at 3% of the gross
rent. Stamp duty paid at the time of purchase is Rs. 9,000/-.
The land is of freehold tenure. Prevalent land rate of freehold land in the locality at present is Rs.
8,000/sq.m.
The rate of ownership flats in the locality for similar construction as on today is Rs. 30,000/sq.m.
Questions:
1. What will be the total annual rent receivable by the landlord from all the tenants?
a) Rs. 6,000/- b) Rs. 72,000/-
c) Rs. 1,44,000/- d) Rs. 12,000/-
2. What will be the total outgoings including repairs allowance & collection charges for the
tenanted portion of the building?
a) Rs. 32,380/- b) Rs. 57,380/-
c) Rs. 33,280/- d) Rs 38,230/-
3. What will be the present market value of the tenanted portion of the building if rental income
is assumed to be in perpetuity & rate of capitalization is adopted @ 8%
a) Rs. 9,90,500/- b) Rs. 1,50,00,000/-
c) Rs. 77,50,000/- d) Rs. 4,95,250/-

10
4. What will be the present market value of the owner-occupied portion of the building?
a) Rs. 75,00,000/- b) Rs. 1,50,00,000/-
c) Rs. 10,00,000/- d) Rs. 78,00,000/-
5. Which of the following is not considered as outgoing for computing net rent received by the
landlord?
a) Property tax b) Repair cost
c) Stamp duty paid d) Management charges
6. What is the market value of the balance potential in the property?

a) Rs. 1,50,000/- b) Rs. 15,00,000/-
c) Zero d) Reversionary value of land
Data:
Property tax for 4 floors = Rs. 25,000 / 6 months
Non- Agricultural tax for Mumbai = Rs. 800 / year
Building insurance = Rs. 1,000 / year
Repair cost & maintenance = 6% Gross rent
Rent collection charge = 3% Gross rent
Market rate of land = Rs. 8,000 / sq.m.
Prevalent market rate of flat = Rs. 30,000 / sq.m.
Solution:
1.Rent received by the owner:
Tenants occupied portions = GF & FF
Number of tenants in each flat =4
Total number of flats in all flats =2x4=8
Monthly rent for each flat = Rs. 750/-
Monthly rent for all flats = 750 x 8 = Rs. 6,000
Yearly rent for all flats = 6,000 x 12 = Rs. 72,000/- (Ans: b)
2.Outgoings:
Property tax = Rs. 50,000
N.A. (Non-Agricultural tax) = Rs. 800
Insurance premium = Rs. 1,000
= Rs. 51,800

11
Since the tenants are bearing 50% of the above expenses,
the actual outgoings of the owner = Rs. 25,900
Maintenance charges 6% of gross rent = Rs. 4,320
(0.06 x 72,000)
Rent collection charge 3% of gross rent = Rs. 2,160
(0.03 x 72,000)
Total outgoings = Rs. 32,380/- (Ans: a)
3.Capitalization amount:
Gross income = Rs. 72,000
Outgoes = Rs. 32,380
Net income = Rs. 39,620
Yield = 8%
Capitalized amount = 39,620 x (100 / 8)
= Rs. 4,95,250/- (Ans: d)
4.Value of the building - free holder (land owner):

FSI =1
Area of the flat 2 x 250 = 500 sq.m.
Market rate of flat = Rs. 30,000/sq.m.
Market Value 500 x 30,000 = Rs. 1,50,00,000/- (Ans: b)
5. While computing net rent received by the landlord, Stamp duty is not to be
considered. (It is onetime payment for purchase of the property) ((Ans: c)
6. Since the allowable FSI is fully utilized, there is no balance market potential in the property.
Hence, the market value of the balance potential is zero. ((Ans: c)
Question 15.
An apartment carries 4 floors built on a plot of area 1,000 sq.m.
Each floor area is 250 sq.m.
The GF & FF have been rented and SF & TF is in possession of the owner.
Each floor carries 4 tenements, and tenants pay @ Rs. 750 / tenement as rent.
The property tax being paid is @ Rs. 25,000 / six month. Rs. 900 / year is non agri - tax. 6% per
annum towards management cost.

12
The tenants are bearing 50% of the property tax, N.A. tax. Rs. 9,000/- stamp duty cost. 3% towards
rent collection charge.
Cost of land is Rs. 2,000 / sqm and cost of construction is Rs. 25,000 / sqm, FSI is 1. Age of the
building is 20 years and total building life is 60 years. (salvage 10% Calculate the following:
Questions:
1. What is the total rent?

2. What are the total outgoes?
3. What is the valuation of owner-occupied portion?
4. What is the balance potential in building?
5. What is the depreciated cost of building @ 10% salvage value?
6. What is the tenanted portion value @ rate of return of 8% PA?
Data:
Property tax = Rs. 25,000 / 6 months
Non-Agricultural tax (for Mumbai) = Rs. 900 / year
Management cost = 6%
Stamp duty = Rs. 9,000/-
Cost of land = Rs. 2,000/sq.m.
Cost of construction = Rs. 25,000/sq.m.
Rent collection charge = 3%
Total life of the building = 60 years
Solution:
1. Rent received by the owner:
Tenants occupied portions = GF & FF
Number of tenants in each flat =4
Total number of flats in all flats =2x4=8
Monthly rent for each flat = Rs. 750/-
Monthly rent for all flats = 750 x 8 = Rs. 6,000
Yearly rent for all flats = 6,000 x 12 = Rs. 72,000/-
2. Outgoings:
Property tax = Rs. 50,000
N.A. (Non-Agricultural tax) = Rs. 900
= Rs. 50,900

13
Since the tenants are bearing 50% of the above expenses,
the actual outgoings for the owner = Rs. 25,450
Management charges 6% of gross rent = Rs. 4,320
(0.06 x 72,000)
Rent collection charge 3% of gross rent = Rs. 2,160
(0.03 x 72,000)
Total outgoings = Rs. 31,930/-
3. Value of the building - free holder (land owner) :

FSI =1
Area of the flat 2 x 250 (SF & TF) = 500 sq.m.
Replacement cost = 500 x Rs 25,000
= Rs 1,25,00,000
Salvage value percentage = 10%
Depreciation percentage = (20/60) x 90 = 30%
Depreciation value = 0.30 x Rs 1,25,00,000
= Rs. 37,50,000/-
Depreciated value for free holder portion
(1.25 cr – 37.50 lks) = Rs. 87,50,000/-
4. Since the allowable FSI is fully utilized, there is no balance market potential in the property.
Hence, the market value of the balance potential in the property is zero.
5. Depreciated cost of the building.

FSI =1
Area of the building = 1000 sq.m.
Replacement cost = 1000 x Rs 25,000
= Rs 2,50,00,000
Salvage value percentage = 10%

14
Depreciation cost = 0.30 x Rs 2,50,00,000
= Rs. 75,00,000/-
Depreciated cost (2.50 cr – 75.00 lks) = Rs. 1,75,00,000/-
6. Capitalization amount:
Gross income = Rs. 72,000
Outgoes = Rs. 31,930
Net income = Rs. 40,070
Yield = 8%
Capitalized amount = 40,070 x (100 / 8)
= Rs. 5,00,875/-
* * *

15
VALUATION TABLES & LEASEHOLD PROPERTIES
1. Simple Interest PxNxR
2. Compound Interest Px 1
3. Capitalized Value (CV) Net Income x Years’ Purchase
4. Years’ Purchase 100 / Rate of Return
5. Present Value / discount rate CX
6. Amount of Re1 per Annum CX
7. Gross Sinking Fund Cx
8. Present value of future income Single rate

Cx =Cx
9. Present value of future income (Dual rate) =
COMPOUND INTEREST
Question 1.
What will be the sum of Rupees.5,000 at the end of 5 years @ 5% compound interest per annum?
Solution
Amount A = P x 1 = Rs 5,000 (1 + 5%)5
= Rs 5,000 x (1.05)5
= Rs 5,000 x 1.276
= Rs. 6,380/-
Question 2.
In 2013, a valuer valued a residential property in a mofusil town for Rs. 68.56 lakhs. Assuming an
annual escalation of 10% per year, what will be the value of the property as on 2018 by applying the
formula?
Solution:
Property value assessed = Rs. 68,56,000
Rate of escalation = 10%
Number of years (2018 – 2013) = 5 years

16
Amount A = P ( 1 +r)n = 68,56,000 ( 1 + 10%)5
= 68,56,000 x (1.1)5
= 68,56,000x 1.6105
= Rs. 110.42 lakhs
Question 3.
A Contractor took a loan of Rs. 36,00,000/- from a bank for construction of modern building 2 years
back. He has to repay the loan at the Interest of 10%. If the sale of the property is yet to take one
year, calculate the amount to be paid by the contractor?
a) Rs. 46,00,000 b) Rs. 48,91,600
c) Rs. 49,00,000 d) Rs. 47,91,600
Solution:
Amount borrowed = Rs. 36,00,000
Amount to which Re. 1/- will accumulate @ 10% in 3 years
= (1 + i)n == (1 + 0.1)3 = = 1.331
Amount to be repaid by the contractor
= (1.331 x 36,00,000)
= Rs. 47,91,600/- (Ans: d)
YEARS’ PURCHASE
Question 4.
Which of the following mathematical formula is used to find out Years’ Purchase for annuity
receivable in perpetuity?
a) 100/Rate of interest
b) 1 / {1-(100/rate of interest) ^n}
c) ((100/rate of interest) ^n)-1
d) {((100/rate of interest) ^n)-1}/rate of interest
Question 5.
The net income was reported at Rs.21,000 and the property sold for Rs.300,000. What
capitalization rate applied for this sale?
a) 0.075 b) 0.080
c) 0.065 d)0.070
Solution
Net income = Rs 21000

17
Sale value = Rs 3,00,000
YP (Capitalization Rate) = NI / CV = 21,000 /3,00,000
= 7% or 0.070 (Ans: d)
Question 6.
A property has a net income of Rs.30,000. One appraiser decides to use a 12 Percent capitalization
rate, while a second appraiser uses a 10 percent rate.
Use of the higher rate results in in appraisal value.
a) Rs.50,000/- increase b) Rs.50,000/- decrease
c) Rs 2,50,000 d) Rs 3,00,000
Solution;
Valuer Net Income capitalization CV = NI x YP Total value
rate arrived at
Valuer 1 Rs 30, 000 12% 30000 x 100 / 12 Rs 2,50,000
Valuer 2 Rs 30, 000 10% 30000 x 100 / 10 Rs 3,00,000
Use of the higher rate results by Valuer 1 in Rs.50,000/- decrease in appraisal value. (Ans: b)
Question 7.
The monthly rent (Net) of a shop of 540 sq.ft. is Rs. 12,000/-. Calculate the approximate value by
adopting a rate of return as 5%.
Solution:
Monthly rent = Rs. 12,000
Yearly rent = 12,000 x 12 = Rs. 1,44,000/-
Rate of return adopted = 5%
Capitalized value = 1,44,000 x 100/5 = Rs. 28,80,000/-
Question 8.
The net monthly rent of a residential building of 1,250 sq.ft. is Rs. 16,500/-. Find the approximate
value of the property by rent capitalization method by adopting a rate of return as 3%.
Solution:
Monthly rent = Rs. 16,500
Yearly rent = 16,500 x 12 = Rs. 1,98,000/-

18
Rate of return = 3%
Capitalized value = 1,98,000 x 100 /3 = Rs. 66,00,000/-
Question 9.
A freehold site is rented out for 99 years to a developer at a ground rent of Rs. 1,00,000 per annum,
net of outgoings. It is renewable.
The lessee developer has constructed a building fetching an annual rent of Rs. 5,00,000/-. Value
the freeholder’s interest assuming a yield of 6%.
Solution:
Value in the hands of lessor:
Net income from ground rent = Rs. 1,00,000
Yield (Rate of return) = 6%
Years purchase = 100 / R = 100 / 6 = 16.67
Value in the hands of lessor = Rs 1,00,000 x 16.67
= Rs. 16,67,000/-
Question 10.
Value the freehold interest of a shop which has been let out for a rent of Rs. 1,00,000 (Net) per
month. The rent is renewable. Yield is 5%.
Solution:
Yearly rent = 1,00,000 x 12 = Rs. 12,00,000
Net income = Rs. 12,00,000
Y.P. for a yield of 5% = 100/5 = 20
capitalized value = 12,00,000 x 20 = Rs. 2,40,00,000/-
Question 11.
A new shop was purchased for Rs. 10,00,000 which was rented out for Rs. 5,000 per month. What
is the yield?
Solution:
Capital value = Rs. 10,00,000
Yearly rent = Rs. 5,000 x 12 = Rs. 60,000
Yield = 60,000 x 100 / 10,00,000 = 6%

19
Question 12.
An industrial corporation has decided to lease 40,000 sq.ft. plot for a user for 60 years period. The
land rate is 2,000 per sq.ft. Assuming a yield of 6%, what will be the monthly lease?
Solution:
Extent of land = 40,000 sq.ft.
Market rate = Rs. 2,000/sq.ft.
Value of land = Rs. 8,00,00,000
Lease rent yield = 6%
Annual rent = 8,00,00,000 x6 /100 = Rs. 48,00,000
Monthly rent = 48,00,000/12 = Rs. 4,00,000/-
Question 13.
A private trust had leased 10,000 sq.ft. plot for 99 years lease which can be renewed for further
period. Fix lease rent if the land rate is Rs. 1,500/sq.ft. Assume lease rent as 8%.
Solution:
Extent of land = 10,000 sq.ft.
Land rate = Rs. 1,500/sq.ft.
Land value = Rs. 1,50,00,000
Lease rent yield assumed = 8%
Annual lease rent = 1,50,00,000 x 8 / 100 = 12,00,000
Monthly lease rent = Rs. 1,00,000/-
Question 14.
An apartment building consists of 12 flats of super built up area 1,050 sq.ft. The net monthly rent
of a flat is Rs. 9,000. The prevailing rate of return is 2.5%. Find the approximate value of one flat
by rent capitalization method.
Solution:
Net monthly rent = Rs. 9,000
Yearly rent = Rs. 1,08,000
Rate of return = 2.5%
Value = 1,08,000 x 100 / 2.5 = Rs. 43,20,000/-

20
PRESENT VALUE / DISCOUNT RATE
Question 15.
What is the Present value of rupee for Capital amount receivable at a future date of Rs 10,00,000
at 6 % compound interest rate for 10-year term?
a) Rs 5,85,390 b) Rs 5,58,390
c) Rs 8,55,390 d) Rs 5,26,850
Solution:
Present worth of amount receivable = PVA = CX
PVA = Rs10,00,000 X = Rs10,00,000 x 0.55839 = Rs5,58,390/- (Ans: b)

.
Question 16.
An investment pays Rs 300 annually for 5 years, with the first payment occurring today. The present
value (PV) of the investment discounted at 4% annual rate is approximately-----
a) Rs 1,336 b) Rs 1,389
c) Rs 1,625 d) Rs 1,925
Solution:
Discount rate formula :
Instalment Amount paid Rate per month Discount rate Net Present
1 Value
1
1 Rs 300 0.04 (4%) - Rs 300.00
2 Rs 300 0.04 (4%) 0.9615 Rs 288.45
3 Rs 300 0.04 (4%) 0.9245 Rs 277.35
4 Rs 300 0.04 (4%) 0.8890 Rs 266.70
5 Rs 300 0.04 (4%) 0.8548 Rs 256.44
(Ans: b) Rs 1388.94
AMOUNT OF RE 1 PER ANNUM

Question 17.
Amount of Re.1 per annum is worked out by which of the following formula?
a) r / ((1+r) n - 1} b) ((1+r) n – 1) / r
c) r / ((1+r) n + 1) d) ((1+r) n + 1) / r

21
Question 18.
Rs 500 deducted every month and invested annually towards PF account from salary for a period
of 20-year terms and at a 7% of compound interest?
a) Rs 2,56,000 b) Rs 2,46,000
c) Rs 2,26,000 d) Rs 1,50,000
Solution:
Accumulated sum of Re 1 / year (APA) =

. . . .
= = = = = 41
. . . .
Gross Accumulated sum = Rs 500 x 12 x 41 = Rs 2,46,000/- (Ans: b)
ANNUAL SINKING FUND

Question 19.
Annual Sinking fund to be set aside each year for recouping Rs 1 at the end of 6 years, at 5 percent
rate of interest is represented by formula-----------
a) 0.05/ ((1+ 0.05)6-1} b) {(1+0.05)6+1} / 0.05
c) 5 / (1+ 5)6-1) d) 0.05 / {(1+0.05)6+1}
Question 20.
Which one of the following best defines Annual sinking fund?
1. Annual sum required to be invested to an amount of Re. 1/- in specified years

2. Monthly sum required to be invested to an amount of Rs. 10/- in specified years
3. Annual sum required to be invested to an amount of Rs. 10/- in specified years
4. Annual sum required to be invested to an amount of Rs. 100/- in specified years
Question 21.
To find out the depreciated worth of the building to set aside annually for 10 lakhs as Capital
recoupment amount expected at a 4% interest rate for the period unexpired period of lease of 60
years
a) Rs 2,400 b) Rs 4,200
c) Rs 3,200 d) Rs 4,000
Solution:
Gross sinking fund GSF = Cx

22
. .
GSF = Rs10,00,000 x = Rs10,00,000 x
. .
= Rs10,00,000 x 0.0042
= Rs 4,200 /- (Ans: b)
PRESENT VALUE OF FUTURE INCOME SINGLE RATE

Question 22.
Annual Rental income from property is Rs 48,000 /-. If the building is demolished after 40 years,
what will be the present value of the property @ 7% interest rate?
a) Rs 6,00,000 b) Rs 6,39,936
c) Rs 6,28,745 d) Rs 6,93,935
Solution:
Asset value = Cx
C = Capital income (annuity) received each year R = Compound interest rate

N = Number of years YP = Year’s Purchase
. . .
YP = = = = = 13.332
. . .
Asset value = C X YP = Rs 48000 x 13.332 = Rs 6,39,936 /- (Ans: b)
PRESENT VALUE OF FUTURE INCOME DUAL RATE

Question 23.
Which of the following represents the year purchase for Re.1 with remunerative rate of interest at
8% and annual sinking fund amount to be set aside for recouping Rs .1 is 0.021?
a) 1 / (0.08+0.021) b) 0.021/0.08
c) (0.08+0.021) / (0.021) d) 1/(0.08-0.021)
Question 24.
The annual rent received from the property is Rs 48000 /-. Expected rate of return is 10% future
life of the building is 50 years. Recoupment rate is 4% on capital.
Find the purchase price.
a) Rs 4,85, 672 b) Rs 4,50,672
c) Rs 4, 60,672 d) Rs 4,75,672

23
Solution:
Present value of Re.1 / year = YP =
R = Remunerative rate of interest = 10%

.
S = Sinking fund = = = 0.0065
.
Asset Value = C x YP = C x
= Rs 48000 x = Rs 48000 x = Rs 48000 x 9.389

. . .
= Rs 4,50,672/- (Ans: b)
Question 25.
A property fetches a leaseholder Rs. 30,000 per annum. The rent fixed to the paid to the superior
landlord is Rs. 16,000 per annum. If freeholder expects a return of 8 percent, then the leaseholder
should expect a rate as indicated below so that he makes a reasonable profit.
a) 0.09 b) 0.07 c) 1.00 d) 0.01
Solution:
If the property is assumed as freehold, then, the freeholder is expecting a rate of return of 8%. The
lease holder must expect a minimum rate over and above this 8%.
In Sorab Talati vs Josheph Michem Appeal 101 of 1949 - Vol.- 2 of SOC – page 162 (Bombay)
(Invest Theory of Rent) C) For leasehold properties, 1% extra yield on both types of investment
was considered fair, to account for extra risk of investing capital.
Hence, 9% is fair for the leaseholder, so that he makes a reasonable profit. (Ans: a)
Question 26.
An ownership flat with 140 sqm area is licensed for an amount of Rs 1,10,000 per month. Society
maintenance charges are Rs 20,000 per 3 months. Which of the following will be market value of
the flat on income approach by adopting 4 percent as rate of capitalization?
a) Rs 3,10,00,000 b) Rs 1,10,00,000
c) Rs 2,00,00,000 d) Rs 1,32,00,000
Solution:
License amount per annum = Rs 1,10,000 x 12 = Rs 13,20,000
Less Society maintenance per annum
= Rs 20000 x 12 / 3 = Rs 80,000
Total net License amount per annum = Rs 13,20,000 - Rs 80,000
= Rs 12,40,000

24
Rate of capitalization =4%
Capitalized value or Market value = Rs 12, 40,000 / 0.04
= Rs 3,10,00,000 (Ans: a)
Question 27.
Mr. ‘X’ is owning a vacant site of 8,000 sq.ft. near the bus stand. He wants to let out. The prevailing
unit market rate is Rs. 10,000 and the guideline rate is Rs. 15,000 / sq.ft. Mr. Y wants this site or
parking vehicles. Mr. Z also wants this site and wishes to construct a shed. Assuming rate of return
of 4% & 5% as secured rent and unsecured rent respectively, what is the maximum rent that can be
suggested for i) Y & ii) Z?
For Y
a) Rs. 2,66,667 b) Rs. 3,33,333
c) Rs. 5,00,000 d) Rs. 4,00,000
For Z
a) Rs. 5,00,000 b) Rs. 3,33,333
c) Rs. 2,66,667 d) Rs. 4,00,000
Solution
For Y
Unsecured Ground Rent: A vacant ground given under lease & the lessee leases the vacant land
for vehicle parking, materials storing without any construction or making any improvements
Land area = 8000 sqft
Market rate = Rs 10,000 per sqft
Total value of land = Rs 8,00,00,000
Unsecured Ground Rent = 5%
Annual Rent for Y = Rs 8,00,00,000 x 5%
= Rs 40,00,000
Monthly Rent for Y = Rs 40,00,000 / 12
= Rs 3,33,333 (Ans: b)
For Z
Secured Ground Rent: A vacant ground given under lease and the lessee develop the land and
make improvements and lease out the building he has constructed. He maintains the building and
pay statutory taxes.
Land area = 8000 sqft
Market rate = Rs 10,000 per sqft

25
Total value of land = Rs 8,00,00,000
Secured Ground Rent = 4%
Annual Rent for Z = Rs 8,00,00,000 x 4%
= Rs 32,00,000
Monthly Rent for Z = Rs 32,00,000 / 12
= Rs 2,66,667(Ans: c)
Question 28.
A purchaser is offered a property with a net income of Rs. 52,000 per annum. The purchaser
assumes that a first mortgage can be raised at 60% of the purchase price. The mortgage will be at
an interest rate of 15% per annum. The purchaser will fund the balance of the purchase price and
requires a 10% return on equity. What is the value of the property?
a) Rs 3,50,000 b) Rs 3,75,000
c) Rs 4,00,000 d) Rs 4,25,000
Solution:
Average Interest Rate = Mortgaged fund (borrowed) + Equity (purchaser own fund)
= (0.60 x 0.15) + (0.40 x 0.10) = 0.13
Value of the property = 52,000 = Rs. 4,00,000 (Ans: c)

0.13
Question 29.
A government M.I.D.C. gives 8,000 sq.m. of land on 99 years lease @ 1/- P.A.
lease rent and charged one time premium of Rs. 450 / sq.m. in the year 1998. The lessee in the
year 1998 constructed an industrial shed 4,000 sq.m. of BU area with his own expenditure. The age
of the shed is 20 years as on year 2018 and total life of the shed is 40 years. Salvage value 10%
The land rate is Rs. 2,000 / sq.m. and replacement cost is Rs. 25,000 / sq.m. Lease provides that
the lessor is entitled to charge 50% unearned increase in land value as transfer / assignment
charges in case of sale / transfer of the property. Calculate the following:
Questions:
1. What is the lessor’s interest?
2. What is the total value of property considering a freehold property?
3. What is the lessee interest?
4. What is the reversionary value of the leasehold land?
5. What is the depreciated value of shed?

26
Data:
Year of lease = 1998
Period of lease = 99 years
One time premium
= Rs.450/sq.m. for land extent
Land area = 8,000 sq.m.
Lease rent = Re. 1/year
Lessee built a factory of built-up area = 4,000 sq.m.
Year of construction of factory by the lessee = 1998
Land rate as on 2018 (date of valuation) = Rs. 2,000/sq.m.
Replacement cost of building in 2018 = Rs. 25,000/sq.m.
Age of the shed 2018 - 1998 = 20 years
Salvage value = 10%
Date of valuation = 2018
Opinion:
1. Lessor’s interest:
This case of lease of land is by state government. It is assumed as a perpetual
lease and reversionary value of land is negligible. The lease rent is only Re.
1/year and hence its capitalized value will be negligible. Lessor’s interest in land value would be
therefore is restricted to claim 50% of unearned increase in land value in case of sale.

Prevailing land rate 2018 = Rs. 2,000/sq.m.
One time premium charged in 1998 = Rs. 450/sq.m.
Unearned increase 2,000 - 450 = Rs. 1,550/sq.m.
The percentage the lessor is entitled to = 50%
charge in case of transfer
Unearned increase the lessor can enjoy = 0.5 x 1,550
= Rs. 775/sq.m.
The lessor’s value - 8,000 x 775 = Rs. 62,00,000/- (1)
2. Value of property assuming it is a freehold:

(i) Land :
Unit rate of land = Rs. 2,000/sq.m.
27
Land value - 8,000 x 2,000 = Rs. 1,60,00,000/-
(ii) Building:
Building area = 4,000 sq.m.
Replacement cost = Rs. 25,000/sq.m.
Replacement value = 4,000 x 25,000
= Rs. 10,00,00,000/-
Age of the building: 2018 - 1998 = 20 years
Life of the factory = 40 years
Salvage value assumed = 10%
Depreciation value = 0.45 x 10,00,00,000
= Rs. 4,50,00,000/-
Depreciated value (10,00,00,000 - 4,50,00,000) = Rs. 5,50,00,000/-
(iii) Total value :
Value of land = Rs. 1,60,00,000/-
Depreciated value of building = Rs. 5,50,00,000/-
Total value = Rs. 7,10,00,000/- (2)
3. Value of lessee’s interest:

Total value of land: 8,000 x 2,000 = Rs. 1,60,00,000/-
Value of lessee’s interest = 1,60,00,000 - 62,00,000
= Rs. 98,00,000/-
Lessee also holds in the building value.
Depreciated value of building = Rs. 5,50,00,000/-
Total value: Land = Rs. 98,00,000
Building = Rs. 5,50,00,000
= Rs. 6,48,00,000/-
4. Reversionary value is negligible and hence not considered.
5. Depreciated value of shed = Rs. 5,50,00,000/-
Question 30.
A warehouse property is situated close to a port facility in a major port town. It is let out on a 50
years lease. The lessee is paying to the lessor an exclusive ground rent @ INR 2,000 per annum,
after payment of a onetime premium of INR 25,00,000. The rack rental value on full repairing terms

28
amounts to INR 1,20,000 per annum. The yield from freehold ware houses in similar locations is
considered to be 10% and for long term lease is 15%.
Questions:
1. What is the outgoing for lessor?
2. What is the net income for the lessor during the term period?
3. What is the YP during the term period?
4. What is the YP during the reversionary value calculations?
5. What is the value of freeholder’s interest?
6. What is the market rent?
Data:
Lease = 50 years
Ground rent to lessor = Rs. 2000/- per annum
Premium paid to lessor = Rs. 25,00,000/-
Rack Rent on full repairing terms = Rs. 1,20,000/- per annum
Yield for freehold ware houses = 10%
Yield for long term lease = 15%
Answers:
1. What is the outgoing for lessor?
The outgoing for lessor is nil since the lease is on full repairing terms.
2. What is the net income for the lessor during the term period?
Rs. 2000/- per annum
3. What is the YP during the term period?

Y.P. = 100 / 15 = 6.66
4. What is the YP during the reversionary value calculations?

The YP during reversionary value calculations is 100 / 10 = 10.
5. What is the value of freeholder’s interest?

Value of freeholder’s interest = value of term + value of reversion
i) Value of term (lessor’s interest) = 2000 x 6.66 = 13,320
ii) Value of reversion
Market value = Rs. 1,20,000/-

29
Y.P. @ 10% = 100 / 10 = 10
Capitalized value = 1,20,000 x 10 = 12,00,000
Y.P. in perpetuity deferred for 50 years @ 10%
= (1/ (1 + 0.1)50 )
= 0.008518
Value of reversion = 12,00,000 x 0.008518
= 10,222
iii) Value of freeholder’s interest = 13,320 + 10,222
= Rs. 23,542/-
6. What is the market rent?
Rs. 1,20,000/- per annum.
Notes:
1. Simple Interest Calculation: The gross amount accrued at the end of given period of term, at
the given rate of simple interest. The total interest amount accrued in the given period total interest
amount = I = P x N x R
Gross Amount (Annuity) = P + I = Principle Amount + Interest
P = Principal Amount: N = number of years: R = simple interest Rate
2. Compound interest amount Calculation: Single lump sum payments which are compounded
at a given constant interest rate at the end of each definite time period at equal intervals of time.
The gross amount accrued at the end of given period of term, at the given rate of compound interest.
Total interest = I = (1+R) n
Gross Amount = P + I = P x (1+R) n

= Principal Amount + compound Interest accrued
P = Principal Amount N = number of years R = Rate of compound interest
3. Present value of rupee Calculation: By this formula we can calculate the Present value of Re
for a given period at a given rate of compound interest. This method is known as discounting or
deferring of receivable at a future given period and at a given rate of compound interest.
Present value of a Rupee = PV =
Present worth of amount receivable = PVA = C X
C = Capital amount receivable at a future date R = Compound interest rate

N = Number of years

30
4. Amount of Re. 1 / year (annum) Calculation: Amount to calculate the annual regular investment
of Re for a given period at a given rate of compound interest
Accumulated sum of Re 1 / year = (APA) =
Gross Accumulated sum = C X
C = Capital amount received / year R = Compound interest rate N = Number of years
5. Annual sinking fund Calculation: This calculation formula is used to find out the depreciated
worth of the building. For this we have to consider a sinking fund amount to set aside annually at a
given interest rate for the period equal to the building age or unexpired period of lease.
Annual sinking fund = ASF =
Gross sinking fund = GSF = C x
C = Capital recoupment amount expected

R = Compound interest rate N = Number of years
6. Present value of future income of Re. 1 / year (Single rate basis): Present worth of future
annual income for a given time period and at a given rate of compound interest. This method is
adopted for a perpetual income or by a long-term lease with unexpired period is more where no
annual sink fund is considered for calculation. Only remunerative rate of interest for the income is
considered and hence it is called single rate method
Asset value = C x
C = Capital income (annuity) received each year R = Compound interest rate

7. Present value of future income of Re.1/year (Dual rate): To calculate present worth of the
future annual income flow for a given period of time and at a given rate of compound interest with
taking in to account the sinking fund. It is calculated on the terminable income.
This method is usually adopted for an income with the remunerative rate of interest for the income
and also a provisional annual sinking fund is considered.
R = Remunerative rate of interest S = Sinking fund =
Asset Value = C x YP
C =Capital income (annuity) received each year R = Compound interest rate
31
TYPES OF LEASE
Building lease: A vacant ground given by lessor under lease with ground rent and lessee develop
the land and make improvements and lease out the building he has constructed. He maintains the
building and pay statutory taxes.
The lease amount collected by the lessor is ground rent, which is here termed as Head Rent. If the
building is rented out (sub lease) by the head lessee, the amount collected by him is called Rack
rent.
Occupational lease: A building property given on lease to the lessee, which means, both land and
building in part and parcel has been leased out. The rent collected is termed as Rack Rent. The
lessor has the right of evicting the lessee. Example: Residential house, Apartments, shops.
Full repair lease: If the lease agreement stipulates the lessee to undertake all outgoings apart from
his head rent, the lease is called full repairing lease
Life lease: The lease period is fixed till the death of lessee. The lease period expires on the death
of the lessee.
Sub lease: In the lease agreement if the lessee is permitted to give the lease hold property to other
occupants for a shorter time less than his lease period, with an enhanced lease amount, then the
lease agreement entered by the lessee with the incumbents is called a sub-lease. The main lessee
is called the Head Lessee. Other
sub lease holders are called sub lessee. The main lessee retains his reversion of lease under his
control.
* * *

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Continuous Training Programme on Valuation

IBBI EXAMINATION (L & B)

Part I - Case studies - Pages 01 - 60

1. Elements of valuation of immovable - Sri. R.K. Gandhi

2. (i) Registered valuers examination - - B. Kanaga sabapathy

(* Soft copy - Price : 1,000 + 500)

ONLINE CLASSES ON CASE STUDIES

(This page is kept vacant intentionally)

1.0. CERTAIN POINTS TO BE REMEMBERED WHILE ATTENDING THE CASE

1. Know the difference between depreciation value and depreciated value.

3. Historic cost, original cost and intrinsic cost are different.

4. The rate of depreciation to calculate written down value (WDV) is prescribed

9. Appearances are deceptive sometimes. Be cautious while ticking the right

13. The cost inflation index is prescribed by CBDT.

15. The salvage value is normally assumed as NIL for insurance.

18. The Joint venture ratio is normally denoted as Promoter : Landlord.

The age is 4 years, life is 60 years, salvage value - 10%.

20. Similarly, don’t round it off as a full number.

24. A few tips while choosing the options :

The options given are :

a) Rs. 2,00,000/- b) Rs. 2,50,000/-

(i) Net income = Rs. 24,000/-

(ii) It can also be worked out like this :

Net income = Rs. 24,000/-

The options given are :

The options given are :

DO NOT TICK “a”

The right calculation is

25. Certain useful informations :

1. Depreciation percentage by Age

3. If life of the building is 60 years, then

4. Replacement value - Depreciation value = Depreciated value.

5. Formula for WDV (Written Down Value)

A = Written Down Value

Total builtup area

(Super) Builtup area of the flat

(This page is kept vacant intentionally)

a) Rs. 21,12,000/- b) Rs. 49,28,000/-

Building area = sq.ft.

Depreciation percentage = x (100 - 20) = 30%

Depreciation value (SLM) = x

Total built up area

1. WHAT IS THE DEPRECIATED VALUE OF THE BUILDING BY CONSTANT

a) Rs. 36,89,600/- b) Rs. 16,40,250/-

A = Depreciated value of the building = ?

2. WHAT IS HISTORIC COST?

a) It is the replacement value as on the date of valuation.

3. WHAT IS THE WRITTEN DOWN VALUE OF THE BUILDING FOR BALANCE

a) Rs. 36,89,600/- b) Rs. 16,40,250/-

A = Written down value = ?

4. WHAT IS THE BOOK VALUE OF THE PROPERTY?

a) Rs. 36,89,600/- b) Rs. 16,46,250/-

Book value of the plot = Rs.

CASE STUDY 4 - VALUATION BY PLOTTING SCHEME METHOD :

In a situation, subject land is located in such a place where, instances of sale

600 m 60% of 600

Unit market rate = Rs. 600/sq.m.

1. WHAT IS VALUE OF 1ST PORTION FROM ROAD SIDE IF THE PLOT IS

a) Rs. 60,00,000/- b) Rs. 30,00,000/-

2. WHAT IS VALUE OF 2ND PORTION FROM ROAD SIDE IF THE PLOT IS

a) Rs. 72,00,000/- b) Rs. 1,44,00,000/-