Valuation MCQ Quiz in मल्याळम - Objective Question with Answer for Valuation - സൗജന്യ PDF ഡൗൺലോഡ് ചെയ്യുക

Explanation:

Development Method of Valuation

• This method of Valuation is used for the properties which are in the underdeveloped stage or partly developed and partly underdeveloped stage.
• If a large place of land is required to be divided into plots after providing for roads, parks, etc, this method of valuation is to be adopted. In such cases, the probable selling price of the divided plots, the area required for roads, parks, etc, and other expenditures for development should be known.
• If a building is required to be renovated by making additional changes, alterations, or improvements, the development method of Valuation may be used.

Valuation based on the profit

• This is very much similar to the rental method of valuation.
• It is most applicable in the case of the valuation of hotels, shops, and cinema.
• Net profit can be realized in the form of rent.
• In this method is net profit is worked out after deducting all possible outgoings including interest of capital investment and also remuneration of labor rendered by the owner.

Rental Method of Valuation

• In this method, the net income by way of rent is found out by deducting all outgoing from the gross rent.
• A suitable rate of interest as prevailing in the market is assumed and a Year’s purchase is calculated.
• This net income multiplied by Year’s Purchase gives the capitalized value or valuation of the property.
• This method is applicable only when the rent is known or probable rent is determined by inquiries.

Direct comparison with the capital Value

• This method may be adopted when the rental value is not available from the property concerned, but there is evidence of the sale price of properties as a whole.
• In such cases, the capitalized value of the property is fixed by direct comparison with a capitalized value of similar property in the locality.

Additional Information

There are following six Methods of Valuation:

1. Rental Method of Valuation

2. Direct Comparisons of the capital value

3. Valuation based on the profit

4. Valuation based on the cost

5. Development method of Valuation

6. Depreciation method of Valuation

Explanation: 

Sinking fund: 

A sinking fund is a fund containing money set aside or saved to pay off a debt or bond. 

Sinking fund = Purchased cost - 10% of the Purchased cost

Annual installment for sinking fund or Annual sinking fund = \(\frac{Si}{{(1+i)}^{n}-1}\) ,

Where, S = sinking fund, I = Rate of Interest, n = Usefull time 

Calculation:

Given:

Purchased cost = Rs. 30,000, n = 20 years, i = 4%

Sinking fund = Purchased cost - 10% of the Purchased cost

S = 30,000 - 10% of 30,000 = 27,000

Therefore, 

Annual sinking fund = \(\frac{27000\times 0.04}{{(1+0.04)}^{20}-1}\) = Rs. 906.7

Concept:

Confusion PointsPlease read the question carefully, it is clearly asking to find the value "excluding scrap value", that is the reason, we have to deduct the scrap (40,000) at the end

1. Straight line method/Constant rate method: This assumes that the loss in the value of the property is same every year and at the end of its useful life it is equal to its scrap value.

\({\rm{Annual\;Depreciation}} = \frac{{{\rm{Purchasing\;cost}} - {\rm{salvage\;value}}}}{{{\rm{life\;of\;machine}}}}\)

2. Constant percentage method/Declining balance method: This assumes that thew property loses it value by a constant percentage of its value at the begining of each year. (n = life of machine)

\(Annual{\rm{ }}\;Depreciation = 1 - {\left( {\frac{{Scrap{\rm{ }}value}}{{original{\rm{ }}cost}}} \right)^{\frac{1}{n}}}\)

Calculation

Given:

FC = Rs. 4,00,000 /-

SV = 10% of FC = Rs. 40,000 /-

Resign life, N = 50 years

Total depreciation = FC - SV

Total depreciation = 4,00,000 - 40,000 = Rs. 360,000

Depreciation per year = \(\frac{{{\rm{Total\;Depreciation}}}}{{{\rm{Deign\;life}}}}\)

Depreciation per year = 360000/50 = Rs. 7200

Total depreciation after 25 years = 7200 × 25 = Rs. 180,000

∴ Value of the structure after 25 years (excluding scrap value) = 4,00,000 - 180,000 - 40,000 = Rs. 180,000

Calculation:

Given,

Depreciation charge = 30 paise per working hour

Working hour = 36000 hours

Scrap value = 5000

Depreciation charge = Purchase value – Scrap value

Depreciation charge = 30 paise per working hour

= (30/100) × 36000 = 10800

Depreciation = Purchase value – Scrap value

Purchase value = Depreciation + Scrap value

Concept:

In mathematical form it is represented as:

Capitalised value = Net annual income × Year’s Purchase

Year’s Purchase = \(\frac{{100}}{i}\)

Calculation:

Given,

i = 6 %

Net annual rent = Rs 192000

Year’s Purchase = 100/6 = 16.667

Capitalised value = Net annual income × Year’s Purchase

Capitalised value = 192000 × 16.667 = Rs 3200000

Explanation:

Valuation based on the profit

• This is very much similar to the rental method of valuation.
• It is most applicable in the case of the valuation of hotels, shops, and cinema.
• Net profit can be realized in the form of rent.
• In this method is net profit is worked out after deducting all possible outgoings including interest of capital investment and also remuneration of labor rendered by the owner.

Important Points

Valuation

• The technique of finding the fair price of an existing building or property is known as valuation.
• Valuation of property is done to work out the amount of fair rent of a building, buying or selling of the property, etc., especially when it is requisitioned by the government or semi-government organization.

The future value of the property cannot be determined by valuation.

There are generally six methods of valuation:

i) Rental Method of Valuation

ii) Direct Comparisons of the capital value

iii) Valuation based on the profit

iv) Valuation based on the cost

v) Development method of Valuation

vi) Depreciation method of Valuation

Valuation of different structure is done by different methods.

 Profit based method:- This is a method of valuation, which is based on the profit generated by the properties. It is suitable for buildings like hotels, cinema hall, theaters etc.

Rental method:- In this method, the net income of property is obtained by subtracting all outgoings from gross income. The method is best suitable for building when the rent is known or easily calculated.

• Rate of interest is estimated and year purchase is calculated
• The multiplication of net income and year purchase gives the valuation or capitalized value of the property.
   

Direct comparison method:- When the rental value of property is not known, this method is used. But the sale price of property as a whole is estimated and the capitalized value of property is fixed by direct comparison with the capitalized value of similar property.

Valuation based on cost:- In this method, the highest and best value of open land is estimated and added to the deprecated cost of the building.

Development method or residual method of valuation:- this method is used for the properties which are in under construction stage. If such building required any addition, improvement or alterations, the development method of valuation can be used.

Explanation:

Valuation:

• The technique of finding the fair price of an existing building or property is known as valuation.
• Valuation of property is done to work out the amount of fair rent of a building, buying or selling of the property, etc., especially when it is requisitioned by the government or semi-government organization.

Valuation of land is done by following methods:

Belting method of valuation:

it is based on the road frontage. Frontage land has a greater value than back land. So in order to find out the real value of the land the entire plot is divided into a number of convenient strips by lines parallel to the center line of the road. Each such type of land is known as belt.

Direct comparison method: 

When the rental value of the property is not known, this method is used. But the sale price of property as a whole is estimated and the capitalized value of the property is fixed by direct comparison with the capitalized value of the similar property.

Abstractive Method:

The abstractive method becomes useful when no information is available regarding land transactions in the nearby area or in other words, the value of land where sales are not occurring frequently can be worked out by the application of this method.

Different methods to calculate depreciation are as follows :

a) Straight-line method

b) Constant percentage method

c) Sinking fund method

d) Quantity survey method

Quantity survey method: In this method, the property is studied in details and extent of physical deterioration worked out in endeavor to calculate the depreciation.

Sinking fund method: In this metho, the depreciation is assumed to be annual sinking fund plus interest of the accumulated sinking fund till that year.

Constant percentage method: In this method, the property is assumed to lose value annually at a constant percentage of its value.

Concept:

1. Straight line method: This assumes that the loss in the value of the property is the same every year and at the end of its useful life it is equal to its scrap value.

\(\rm {\rm{Amount\;of\;Depreciation}} = \frac{{{\rm{Purchasing\;cost}} - {\rm{scrap\;value}}}}{{{\rm{life\;in\;years}}}}\)

\(\rm Rate\;of\;depreciation = \frac{{Amount\;of\;depreciation}}{{{\mathop{\rm Cost}\nolimits} \;of\;machine}}\)

2. Constant percentage method: This assumes that the property loses its value by a constant percentage of its value at the beginning of each year. (n = life of machine)

\(\rm Annual{\rm{ }}\;Depreciation = 1 - {\left( {\frac{{Scrap\;{\rm{ }}value}}{{original\;{\rm{ }}cost}}} \right)^{\frac{1}{n}}}\)

Calculation:

Given, 

Purchasing cost = Rs. 96000 + 24000 = Rs. 120000

Scrap or residual value = Rs. 72000

Life = 4 years

\({\rm{Annual\;Depreciation}} = \frac{{{\rm{120000}} \;-\; {\rm{72000}}}}{{{\rm{4}}}}=Rs.\;12000\)

\(\rm Rate\;of\;depreciation = \frac{{Amount\;of\;depreciation}}{{{\mathop{\rm Cost}\nolimits} \;of\;machine}}= \frac{{12000}}{{120000}} \times 100 = 10\%\)

Explanation:

Easement: It is defined as the privilege or right without profit which the owner of the property has to enjoy the respect of that property in or over the property of another person.

Mortgage: A mortgage is a debt instrument, secured by the collateral of specified real estate property, which the borrower is obliged to pay back with a predetermined set of payments.

The person advancing money is called a Mortgagee and the person borrowing money is known as Mortgagor.

Additional Information

Building Lease: In this type of lease, the owner of a freehold open plot of land lets outs his land to the lessee on an agreed amount of premium or ground rent or a combination of both.

The leaseholder may then erect a building over there up to a specified amount and within specified time and he maintains the property and can reside or earn income through such property.

Occupational Lease: In this type, a lease is granted against premium or rent or a combination of the two by an owner of property consisting of land and building or other structures for occupancy for a fixed period to another person.