Consider the following when you order a machinery or an inventory appraisal.
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Machinery, normally, is most valuable in use, "VALUE IN USE," and less valuable when idle and for sale, "VALUE IN EXCHANGE."
- Machinery has a different value to the end user, the purchaser of idle surplus, and the reseller or dealer of used machinery.
- Generally, inventory that turns less than four times per year becomes a liability. Work-In-Progess has limited liquidation value depending on economic and functional life. There are exceptions.
Different kinds of value for different reasons.
Fair Market Value is the most misunderstood term and can have many faces. Briefly fair market value means that a willing seller and a willing buyer, both aware of all facts of value for a particular property, agree on the value in terms of money.
Fair Market Value In Use means what the assets are worth in production and at the place of use. The value usually includes original cost, freight, taxes and installation less physical and functional depreciation and less economic obsolescence.
Liquidation Value usually implies forced or auction value. This means that the opinion of value considers the condition of the machinery, the ease of removal, the market and the anticipated state of the buyer's mind on the effective date of the appraisal.
Everything about an appraisal is an opinion until an actual sale. Opinion of value is based on the appraiser's knowledge in past situations. Appraisal experience and logic are the keys to a good appraisal.
Each appraisal is a challenge and there are possibilities of dramatic value shifts depending on the reason for the appraisal. Examples include eminent domain or condemnation when a viable business is forced to move. Or, consider the property tax position of a business when the economy suddenly turns for the worse and the property is assessed high taxes on assets of limited or no value.
For more information about the differences in valuation, please call ACI Associates, Inc. 303-972-9142