In light of various queries raised in relation to the life expectancy of Assets I submit an overview of matters to be considered when deciding on the total overall life expectancy of an asset and also the remaining life expectancy of a particular building or structural asset. These are important "Attributes' to be included in the overall deliberations of the Valuer in Asset Valuation process for Financial Reporting Purposes.
Whilst some professions such as for instance Accounting Professionals, Surveyors, and Engineers engage in procedures using precise input of attributes into their work which results in a completed document which can be supported by way of precise support calculations and or formula in conjunction with reference to detailed guidelines and parameters set down in legislation and set documentation. These professions generally use standard calculations including additions, subtractions, division, and multiplication, etc, together with some formula and set tables such as annuities, sinking funds, and terminable interest calculations to obtain an outcome which should be absolutely accurate in totality. These professions are usually capable of processing an outcome which is therefore capable of being supported with respect to each and every data attribute inserted by way of a calculation or formula because that is how the process works. The data that these professions use is provided by way of actual provided data or by reference to published readily available recorded documentation.
The Valuation Profession does not work in the same way as it is more subjective, and the Valuer does not have at his disposal all of the reference data and information set down and which is necessary to complete a valuation project and is therefore obliged to resource most of the support data and documentation himself/herself. Valuer are not considered qualified nor accepted to complete some valuation projects on their own until after they have gained five years intense practical experience. This is due to The Valuer having to gain the experience necessary and the knowledge gained is stored within the Valuer's own memory bank. This relates to many attributes to be decided on inclusive of Life Expectancy.
Why is this the case???
It is due to the near infinite number of variables that a Valuer must consider in deciding on each and every attribute to use within the valuation process. The decision to use a particular inserted attribute within the valuation process, and in this instance within the Excel Valuation Schedules is not based particularly on a calculation or formula but on the Valuer's judgement as to what that attribute should be relative to any and all researched documentation that the Valuer has compiled but also based on his considered judgement of what should apply. In other words, the Valuer should complete as much research as possible and use such support documentation but that the Valuer would also rely on his own judgement as a result of his experience. This means that there is not always a calculation, formula, or precise reference point available for each attribute inserted into the workbook as it is accepted practice for a Valuer to use his/her judgment at to what that input should be.
This reserve of knowledge is used in conjunction with the technically recorded data stored on a HD or SSD digitally and the combination of all of this information is used to assist with providing judgements as to what each and every attribute should be.
The adoption of a Valuer relying on his judgement as to valuation entries is not only accepted by the profession and its governing bodies, but most importantly by the Courts which have jurisdiction to hear matter relating to valuation evidence. These include jurisdictions relative to Property Law, Family Law, Compensation matters for compulsory acquisitions, rating and land tax valuations, and insurance matters.,
The number of variables that are considered for each single attribute to be inserted in the workbook is enormous and each one is different.
Some examples of this is say for the Total Life Expectancy of an Asset and also the remaining Life Expectancy of an Asset.
Some of the items to be considered are listed below:-
This list only covers some of the considerations required to be contemplated for each and every asset whether it be a building or other structure, or an infrastructure asset, or a land asset, and only for the attributes for Life Expectancy.
This is an example of some of the challenges encountered by a Valuer in providing each attribute entry into the workbook and why there may be no simple support calculation or formula provided or capable of being provided, that is because it is not time effectively practical nor possible to record on nor is it considered appropriate or necessary to provide one.
Whilst the comments within the preceding paragraphs emphasise the difficulties that some personnel engaged in employment within Local Government would endure to also correctly decide on an assets Life Expectancy, such comments also may assist such personnel in refining their decisions with regard to these matters.
"In relation to the assessment of the estimation of the remaining useful life of each building asset it is considered that the calculations should be made on the basis of the overall structure, with individual elemental depreciation figures being acceptable and included where considered appropriate. This is due to the nature of the structures whereby it is considered that the different identifiable construction elements making up the total structure would not depreciate at the same rate per annum or have the same overall total life expectancy.
When considering the estimated remaining life of each of the assets consideration has been given to the construction; present age; condition; serviceability; climate conditions, and present and potential utilisation. Investigations have been made into the lifespan of the assets to better understand the factors influencing sustainable physical, functional, and economic asset life-expectancy. This should be combined with general information collated over a long period of working within each LGA.
It may also be that some assets do not represent the optimum development potential relative to the present day expectations and for this reason they may have a shorter potential economically viable remaining life expectancy due to such factors. Whilst their physical life expectancy may be longer, this may not mean that their economic life span equates to this same period."
Neil V Teves AAPI CPV
Asset Advance ♦ Valuers
Suite 11A Solander Centre,
182 Grafton Street,
Cairns City Qld 4870
T: 1300 416 745