EQUIPMENT VALUATION IN

ISSUES AND CHALLENGES

PLANT, MACHINERY &

Module 1:
Principles in PME
Valuations
MALAYSIA

Speaker : Sr Haji Ishak Bin Ismail

Managing Director of IM Global Property Consultants Sdn. Bhd.
Registered Valuer (V-484)
Registered Estate Agent (E-1462)
Registered Property Manager (PM-0006)
IN

International Certified Valuation Specialist, IACVA Canada

Speaker’s Profile : Sr Haji Ishak Bin Ismail
Sr Haji Ishak bin Ismail is an expert in valuation, estate agency, property management,
auction and project management, working in the field since 1991. He is the Managing
Director of IM Global Property Consultants Sdn Bhd, IZ Teraju Holdings Sdn Bhd, IM Global
Auctioneers and IMG Academy Sdn Bhd.

Being actively involved in the real estate industry, he is currently

• A Fellow of Royal Institution of Surveyors Malaysia (FRISM),
• A President of Malaysia Muslim Real Estate Negotiators (PEHAM),
• A current Exco Member of the Association of Valuers, Property Managers, Estate Agents
and Property Consultants in the Private Sector Malaysia (MPEPS),
• An Exco of Business Valuers Association of Malaysia (MBVAM),
• A Member of the Malaysian Institute of Estate Agents (MMIEA) and The Royal Institution
of Chartered Surveyors (MRICS), and
• A former President of Malaysian Institute of Property & Facility Managers (MIPFM).

Owing his years of successes in the field, Sr Haji Ishak is a proud holder of Master’s Degree in
Business Administration (MBA) from the International Islamic University Malaysia (2006),
Bachelor’s Degree in Property Management from Universiti Teknologi Malaysia (1991) and
Diploma in Valuation (1989).
The term of Plant and Machinery…

“The term of Plant and Machinery are used to refer to

installation and support facilities for manufacturing in an
industry designed to perform a specific predetermine function,
whether used singly or in combination with other item to
enhance the productivity or operating facilities, and include all
device in fixed or moveable form, other than real estate,
deployed in manufacturing, processing or assembling of product
from the stage of raw material to finished goods”.
– Kirit Budhbhatti (1999)
Principles of Plant, Machinery and Equipment (PME)

Specific utility of assets.

Estimation in monetary terms the worth of existing PME in consideration with the
contribution to the profitability, market situation and type of PME & standard of
maintenance.

Determination of such worth is a valuation.

PME valuation is largely qualitative and heavily dependent on valuer’s judgement

and justification.
Statements of Standard (Clause 15.2.2)
Under Standard 15, it is stated that the Valuer shall use the Market Value basis for all
valuations, where the Valuer adopts a basis other than Market Value, such basis should
be clearly stated.

When valuing PME on the basis of Market Value, the Valuer must state whether the
valuation assumes that the PME is valued:-
• As a whole for use in its working place
• As a whole for removal from the premises and whether it is the vendor or purchaser
that bears the costs of removal; or
• As individual item(s) for removal from premises and whether it is the vendor or
purchaser that bear the costs of removal.
Statements of Standard (Clause 15.2.3)
An asset functionality may be dependent on other assets, such as within an integrated
production line, operating software, licences, permits, etc. In such a situation, the Valuer
shall state whether the valuation assumes that the complementary assets are:-

• Included in the valuation

• Excluded but assumed to be available
• Excluded and assumed not to be available, or
• Where there is any form of building/structure erected to shelter the PME or building services
provided to the PME, that is part of the PME and it shall be clearly stated in the report,
particularly to avoid double counting of the building value
Valuation of Plant, Machinery and Equipment

Valuers are frequently instructed to value plant,

machinery and equipment (PME) used together in an Phases of Valuation Procedure:
enterprise or by themselves. These include
installations and support facilities for processing or Phase I : Term of reference
manufacturing which are designed to perform a
specific pre-determined function.
Phase II : Strategy of valuation
They may also include all non-realty devices in fixed or
moveable form, deployed in processing, Phase III : Physical verification (inspection)
manufacturing or assembly of products from the stage
of raw materials to finished goods. Phase IV : Analysis of value
Separately reported items such as materials,
inventories, finished products and patents usually do Phase V : Reconciliation of value
not form part of PME.
Open Market Value
Darry (1985) noted that open market value is the best price at which an interest in the
plant and machinery might reasonably be expected to be sold at the date of valuation
either by private treaty, public auction or tender as may be appropriate, assuming:-

• A willing seller a willing buyer.

• A reasonable period within which to negotiate the sale, taking into account the nature of the plant
and machinery and the state of the market.
• Value will remain static throughout the period.
• The plant and machinery will be freely exposed to the market.
• No account is to be taken of an additional bid by a special purchaser.
• The plant may be valued either.
Commonly used in Valuation

• Open Market Value

• Insurance Value
• Existing Use Value
• Going Concern Value
• Force Sale Value
Statements of Standard
Clause 15.2.4 – 15.2.6)

• The Valuer shall take into account the potential impact of the valuation of PME where the PME is
located on the property held on a short lease.

• All PME shall be properly inventoried, verified, inspected and adequately described to give an accurate
picture of the item(s) being valued.

• The Valuer may use any appropriate approach/method of valuation to value PME and shall disclose the
approach/method used.
Classification
of
Machine
Classification of Machine
• Classification of machinery or equipment is to promote uniformity and
consistency, besides that by classifying the machinery and equipment, Valuer will
be able to identify the function of the machinery in the manufacturing process.

• Valuer will also be able to identify different degree of depreciation in the valuing
plant or machinery.

• The class of machinery and equipment depends on the type of industries, for
example of the classification of machinery.
Production Machinery
Support Equipment
Power Wiring
Process Piping
General Plant Equipment
Rolling Stock
Identification of Machine – Macro Identification

• Macro-identification process is the entire manufacturing process are studied by

identifying the major components contributing the design capacity of plant.

• Macro-identification is the method the valuer used to answer these questions:-

 What does plant produced?
 How is the products produced?
 What is the capacity of the plant?
Identification of Machine – Macro Identification
• The information that needs to be considered when gathering or inspecting the
plant for macro-identification are:-

 Date
 Company’s name and address
 Source of information
 Product produce (with each process and name description)
 Engineering design firm and contractor
 Original date of construction and expansion
 Plant or process byproduct, amount and uses
 Plant or unit capacity per day or per year (tons per day, gallons per days, barrels per
days, annual production and etc)
 Plant capacity, design capacity and actual consistent capacity
 Plant efficiency or obsolescence
Identification of Machine – Micro Identification

• Micro-identification is the process of identifying the characteristics of machine

or equipment individually. In order to arrive at a sound value, a machine should
properly be identified and for that it must be properly described and the
descriptions should be so precise that the reader can properly identify or can
find the machine.

• Desktop Analysis
The other alternative method for data gathering is desk analysis (desktop
analysis). The desktop analysis can be useful to identify the comparison data, the
supplier information and manufacturer information by relying on the document
and other information provided by the client or others.
 Thank you
for your attention