METHODS OF VALUATION

(Kaedah-kaedah Penilaian)
 Lecture 10

PROFITS METHOD/
ACCOUNTS METHOD
(Kaedah Keuntungan/ Kaedah Akaun)

Mokhtar bin Omar

6 July 2021
 WHEN TO USE PROFIT METHOD?
 Applicable to special properties such as hotels,
petrol station, cinema, etc

 Should be checked by other methods where

possible

 When there is an absence of rental evidence or

price comparison and the tenant’s accounts
provide a reasonable guide

 When there is an element of monopoly

 
 SPECIAL PROPERTIES VALUATION

WHY THEY ARE CALL SPECIAL PROPERTIES?

 UNIQUENESS OF USE
(unik dari segi penggunaan hartanah –
masjid, kuil,tokong,gereja)

TIED TO A SPECIAL LICENCE

(terikat dengan lesen khas – kasino)

COMPARABLE PROPERTY OR
BUSINESS SUFFERS FROM
DIFFERENCES
(hartanah perbandingan atau
perniagaan yang tiada dalam
pasaran)
 SPECIAL PROPERTIES VALUATION

EXAMPLES OF SPECIAL PROPERTIES

 PETROL STATIONS
 CINEMAS & THEATRES
 HOTELS
 PRIVATE SCHOOLS & COLLEGES
 PRIVATE HOSPITALS
 QUARRIES
 CASINOS
One Of The Methods To Be Used In Valuing Special Properties
That Carry Out Business Activities On The Property Itself Is By
Using:
Salah Satu Kaedah Yang Digunakan Untuk Menilai Harta Tanah Istimewa
Yang Menjalankan Aktiviti Perniagaan Adalah:

PROFITS METHOD
KAEDAH KEUNTUNGAN

Examples Of Properties That Generate Income From

Business Operation:
1. Hotel 3. Cinemas
2. Bowling Centres 4. Petrol Stations
 PROFITS METHOD
Kaedah Keuntungan
1. Also known as Accounts Method
Juga dikenali sebagai Kaedah Akaun

2. The value of a property is not determined by the characteristic

of the property itself but by the business activities carried out
on the property
Nilai hartanah tersebut tidak ditentukan oleh ciri-cirinya, tetapi ia
ditentukan oleh aktiviti yang dijalankan ke atas hartanah tersebut

3. The more wide of the business, the more valuable will be the
property
Semakin besar perniagaan yang dijalankan, semakin bernilai hartanah
tersebut
THE BASIC EQUATION
(PERSAMAAN ASAS)
 THE EQUATION / PERSAMAAN
(Untuk Mengira Nilai Modal/ Capital Value)
Average Gross Revenue p.a. RM
Less Cost of Sales p.a. RM
Gross Operating Profit p.a. RM
Less Business Operating expenditure p.a. RM
Net Profit (Divisible Balance) p.a. RM
Less Operator’s/Tenant’s share p.a.  
i) Interest on working capital 10%  
ii) Risk and profit 20%  
iii) Operators remuneration 10% RM
   
Gross Rent p.a. RM
Less Outgoings p.a.
 
Net Rent p.a.  
YP in perpetuity @ %
   
CAPITAL VALUE RM
 PROFITS METHOD
HOW TO OBTAIN GROSS PROFIT?
BAGAIMANAKAH UNTUK MENDAPATKAN PENDAPATAN KASAR?

It is based on the past three years’ Profit and Loss accounts.

Why three (3) years?
1.To see whether the profit has increase or decrease
2.To see whether the business has the potential of expansion

Kenapa 3 tahun?
1.Untuk melihat samada kadar keuntungan meningkat atau menurun
2.Untuk melihat samada bisnes yang dijalankan mempunyai potensi
untuk dikembangkan
 PROFITS METHOD

COSTS OF GOODS SOLD

-Expenditure for buying goods/items to operate the
business
-Example: restaurant – cutleries, napkin, table cloth
etc

OPERATING EXPENDITURE
- Expenditure for manpower or used in operating
business
 DIVISIBLE BALANCE/
NET PROFIT
PER ANNUM

INTEREST ENTREPRENEUR'S/
ON CAPITAL TENANT/
OPERATOR’S
FAEDAH ATAS
SHARE
MODAL

Modal Untuk Menjalankan There Will Be An Entrepreneur

Perniagaan – Pinjaman Dari Or Tenant That Operate The
Bank Dikenakan Interest Oleh Business. Usually The Amount
Pihak Bank Expected Is Around 40%- 60%
• Gross Rent p.a
The gross rent p.a means the total rental for the one year calendar.

• Outgoings
There are five types for outgoings namely:
1.Repairs
2.Insurance
3.Quit Rent
4.Assessment Rate
5.Management

• Net Rent p.a

This refers to the rental p.a. less the outgoings
EXAMPLE OF PROPERTIES THAT GENERATE INCOME
FROM BUSINESS OPERATION
Cinema
Number of seats, times with ticket prices, number of shows (per
month x 12) and occupancy rate
Hotel
Number of room, times with room rates per day times with year
(365 days) and occupancy rates
Petrol Station
Types of petrol averaged per annum (from THREE years), times
with price per liter
Bowling centre
Number of game times price per game (per month x 12)
 EXERCISE

SPECIAL PROPERTY VALUATION

 Exercise 1

Future Berhad is the owner of a budget hotel located in Kajang.

The hotel is built on a 2-hectare freehold land. Based on the
following information, determine the Market Value of the hotel
as at 1st September 2020 by using Profit Method of valuation.
Main revenue:

Number of Rooms : 150

Operationl Days : 365
Average Occupancy Rate : 85%
RM110 per night
Average Room Rate :
(nett)
Other revenue:

Food and Beverages : RM1,950,872

Mini Bar & Karaoke : RM14,560
Others : RM24,435

Cost Of Sales Per Annum:

Room : RM287,980
Food and Beverages : RM622,650
Mini Bar & Karaoke : RM4,560
Others : RM59,500
Operational Costs Per Annum:

Promotional & Marketing : RM156,000

Administration : RM755,000
Utilities & Energy : RM320,500

Outgoings Per Annum:

Maintenance & Repair : RM430,000

Insurance : RM58,800
Quit Rent : RM30,300
Assessment : RM72,720
Remarks:

Tenant’s Share : 40% of Divisible Balance

Rate Of Return : 11% per annum
 Exercise 2

You are required to value the freehold interest in a petrol station

which is located at Ipoh, Perak. The information given to you by
the property owner are as follows:

Average annual gross profit from sales of:

i.Petrol sales : RM300,000
ii.Goods from counter : RM400,000
iii.Other services : RM35,000
• Operation Costs:
• Remuneration, EPF, SOCSO : RM60,000 per annum
• Electricity : RM1,400 per month
• Water : RM900 per month
• Telephone : RM700 per month
• Stationery : RM150 per month
• Business License : RM3,500 per annum
• Audit and Secretarial fee : RM5,000 per annum
• Interest on Stock RM100,000 }
• Cash RM30,000 } @ 10%
• Administration Expenses : RM12,000 per annum
Property Outgoings:
i.Management, Insurance and repairs @ 10% of gross rent
ii.Rates, quit rent at RM6,500 per annum
iii.Insurance RM20,000 per annum

Operator’s remuneration is 45% and the rate of return for this

kind of property is 10% per annum in the vicinity

a)Calculate the gross rent per annum for the above petrol station.
b)Calculate the owner’s freehold interest for the above petrol
station.
THE END