(TDVC Machinery and equipment appraisal) – Machinery and equipment is a complete structure, including details, assemblies, and parts that are linked together to operate according to the intended design（ is defined in Clause 1, Article 3 of Circular 23/2015/TT-BKHCN issued by the Minister of Science and Technology). Machinery and equipment belonging to movable property (According to Vietnam’s valuation standards) are not permanently attached to a certain space and position and can be moved.

Machinery and equipment appraisal means determining the monetary value of machinery and equipment according to the provisions of the Civil Code in accordance with the market price at a certain place and time, serving a certain purpose according to the valuation standards.

The value of machinery and equipment is a reflection of the residual value of the machinery and equipment that has been depreciated in the course of use, new purchase or the machinery that is no longer being used to serve many purposes of related parties such as purchase, sale, liquidation, bank loan, investment, lease… Therefore, machinery and equipment appraisal plays an important and indispensable role in the market economy as well as in the development of domestic enterprises and FDI enterprises.

Machinery and equipment appraisal

1. Identification of machinery and equipment

Economic – technical characteristics greatly affect the value of the machinery and equipment. Therefore, to estimate the value of the equipment accurately, the appraiser must accurately describe the sprcification of the machine. Identification of machinery and equipment is divided into two categories as follows: Micro identification; Macro identification.

1.1. Micro identification

Micro-identification is the process of detailing the component parts of a machine as a single machine. To do this, the appraiser needs to identify the elements in the following order:

• Asset code (set up by customer)
• Description: General description; detailed description
• Type, model
• Dimensions or measured capacity or legal basis
• Seri number
• Manufacturer’s Name; Year of manufacture; Supplier
• Details of spare parts, machinery components, and attached accessories.
• Transmission system and details of the transmission system such as chain, belt, and coupling. The power source is a mechanical machine or an electric motor.
• Maintenance, servicing, modification, or restoration during use

1.2. Macro identification

The macro identification is done by considering the characteristics of the main details of the machinery and equipment, the details that determine the technical features of that device. During the appraisal of machinery, the appraiser needs to identify and describe to show the following characteristics:

• Type of machine, line
• The process of using the machine, equipment
• Installed capacity and actual production capacity

The necessary information to collect in the process of macro identification is as follows:

• Name and address of the company that manufactures or owns the equipment
• The process of use and the chart of the use process of the machine, equipment
• Installed capacity, actual capacity of machinery and equipment in previous consecutive years
• Condition of input materials
• Finished product mode
• Operation mode: in case the machinery and equipment operate continuously and are composed of many different parts, the overall life of the machinery and equipment depends on the life of one or two main components. In this case, the appraiser needs to identify those details.
• The standards and maintenance program
• Estimated repair costs for the next several years
• Technological suitability (new or old) of machinery and equipment in production or when the latest technology is not used; thereby evaluate the technological obsolescence.
• Age and factors affecting the estimated age of machinery and equipment.

2. Factors affect the value of machinery and equipment

a, Supply and demand factors

The supply side of machinery and equipment is affected by the utility; the supply ability of a particular type of machine or equipment is limited by the scarcity of that machine or equipment and the purchasing power of consumers. Demand for a particular type of appliance is generated by the utility and is influenced by scarcity, attractiveness, and limited by the consumer’s purchasing power.

In a market, supply and demand represent the number of benefits that machinery and equipment can provide for sale or rent at different prices at a given market at a given time with the assumption that labor costs and production costs do not change. Demand is formed by several potential buyers or tenants at a particular interest, at different prices, in a given market, and at a given time.

b, The development of science and technology

The strong development of science and technology makes the invisible wear and tear of machinery and equipment increasingly high and leads to two trends:

• The price of new generation machinery and equipment is high at the first sale
• The price of used machinery and equipment is decreasing day by day

As science and technology develops, the supply of machinery and equipment will increase. Especially the machinery and equipment with high precision, high productivity, saving energy, and raw materials.

c, Policy

For the economy: When the economy grows, the income increases will lead to an increase in demand, and lead to an increase in production scale, which will stimulate investment. As a result, the demand for machinery and equipment increases. The demand for machinery and equipment fluctuates proportionally to economic growth and vice versa. When the growth of the economy decreases, it leads to a decrease in people’s income, and then will affect people purchasing power and limit their consumption demand.

For tax policy: In Vietnam, most specialized equipment or production lines must be imported abroad, if the import tax rate changes, it will affect the price of machinery and equipment, the price of such goods when imported to Vietnam will change.

In addition to the supply and demand factors, the development of science and technology, and policies, the value of machinery and equipment can also be affected by several factors such as public investment policy, credit policy…

3. The basis of machinery and equipment appraisal

The basis of machinery and equipment appraisal can be the market value basis or the non-market value basis. Its value is estimated based on what is normally market value is market value, estimated on a non-market basis as non-market value, and determined by using the approaches specified by the Vietnam valuation standard system.

Market value: The estimated price of machinery and equipment at the time of appraisal, between a willing buyer and a willing seller, in an independent objective transaction, with sufficient information, the involved parties act with knowledge, discretion, and without coercion. When using the market price, the appraiser should pay attention to the following issues:

• Market value represents the price formed in an open and competitive market. This market may be a domestic market or an international market, may include many buyers and sellers, or may include a limited number of buyers and sellers.

• In case there is a restriction on the determination of the market value of the machine or equipment (information, data on the market, appraisal conditions, or other restrictions), the appraiser states clearly the reason, and remedy and shows the extent of the impact on the appraisal result due to this limitation in the appraisal result report.

Non-market price: Is the estimated price of a machine or equipment at the time and place of price appraisal, not reflecting the market value but based on economic-technical characteristics, functions and uses, the benefits that the machine or equipment brings during use, the value for some special buyers, the value when traded in limited conditions, the value for some appraisal purposes and the values that do not reflect other market values. When using non-market value, the appraiser should name the specific type of non-market value to be applied and give specific grounds and arguments, including:

• Special features of appraisal machines and equipment
• Special buyers, investors
• Trading in limited market, forced to sell
• Value for special purposes such as tax purposes

4. Appraisal approaches and methods

Currently, appraisers often apply three popular appraisal approaches and methods: The market approach; The cost approach; The income approach. Corresponding to the approaches are appraisal methods: Comparative method according to the market approach; Renewable cost method, replacement cost according to the cost approach; Direct capitalization method, discounted cash flow method under the income approach. For each type of machinery and equipment, depending on the time, the legal documents provided by the customer, the specific appraisal purpose, the appraiser will choose the appropriate approach and method for appraisal.

4.1.  Market approach

The market approach is a way to determine the appraised machinery and equipment by comparing the appraised machinery and equipment with identical or similar machines and equipment that already have price information on the market. This approach can be used to determine the value of appraised machinery and equipment based on market value or non-market value according to Vietnam’s Valuation Standards. Corresponding to the market approach is the comparative method.

The comparative method is a method of appraisal that determines the value of appraised machinery based on analyzing the price of comparable machines and equipment to estimate and determine the value of appraised machines and equipment. This method is used to appraise the machinery and equipment that has popular transactions in the market.

Advantages: Simple, easy to use, highly reliable results based on evidence and trading information on the market.

Disadvantages: Required information, historical data, due to the special technical nature of the appraised property, it is difficult to find a property being traded on the market exactly the same with appraised property.

4.2. The cost approach

The cost approach is a method that determines the value of an appraised machine or equipment by analyzing the cost of creating a machine or equipment with the same or similar functions and uses and having a similar level of wear and tear to the appraised machinery or equipment. The cost approach can be used to appraise machinery and equipment on a market value or non-market value basis. Corresponding to the cost approach is the replacement cost method and the renewable cost method.

a, Replacement cost method

The replacement cost method is an appraisal method that determines the value of appraised machinery and equipment based on the difference between the replacement cost to create a similar machine and equipment with the same function, and use according to the current market price and having the same level of wear and tear to the appraised machinery and equipment. The replacement cost method is based on the cost to create replacement machinery and equipment which is similar to the appraised machinery and equipment in terms of function and use, but is designed, manufactured, or built with newer technology, materials, and techniques. Normally, replacement machinery and equipment often have a lower cost of creation than the cost of regeneration, and operating costs are not higher than the prevailing level at the time of appraisal. Therefore, the total value of wear and tear or accumulated wear and tear of replacement equipment usually does not include functional wear due to high capital costs or functional wear due to high operating costs.

Formula:

b, Renewable cost method

The renewable cost method is an appraisal method that determines the value of appraised machinery and equipment based on the difference between the cost of recreating identical machinery and equipment with appraised machinery and equipment at current market prices, and the value of wear and tear of appraised machinery and equipment. The renewable cost method is based on the cost of creating prototype-like machinery and equipment with appraised machinery and equipment. This machinery and equipment include outdated characteristics of the appraised equipment.

Advantages: Applicable to machines and equipment that do not have a basis for comparison in the market due to being used for separate purposes.

Disadvantages: Cost does not always equal the value; Must have data from the market; Determining accumulated depreciation and devaluation depends heavily on the appraiser’s subjective assessment; Appraisers must have experience and expertise.

4.3. The income approach

The income approach is a way to determine the value of machinery and equipment, and production lines by converting future cash flows obtained from machinery and equipment, and production lines to present value (value at the time of appraisal). The income approach is based on the principle that the machine, the device is valuable because it generates income for the owner. The income approach can be used to determine the value of appraised machinery and equipment, and production lines on a market value or non-market value basis. The income approach corresponds to two methods: the direct capitalization method, Discounted cash flow method.

a, Direct capitalization method

The direct capitalization method is an appraisal method that determines the value of appraised machinery and equipment based on the conversion of the expected stable annual net income stream from machinery and equipment to the present value by using the appropriate capitalization rate. The direct capitalization method is applied in cases where the income from machinery and equipment is relatively stable (constant or varies by a certain percentage) over the remaining useful life (calculated by the remaining economic life) of the machinery or equipment or permanently.

• Advantages: Simple, easy to use; Based on the financial basis to calculate, hence, it is very scientific.

• Disadvantage: Determining the exact capitalization rate is complicated because asset investment is dependent on the subjective will of each individual.

b, Discounted cash flow method

The discounted cash flow method is an appraisal method that determines the value of appraised machinery and equipment based on the conversion of the expected future cash flows from the machinery and equipment to the present value using appropriate discount rate. The discounted cash flow method is applied in the case that income from machinery and equipment changes over different periods (unstable).

• Advantages: Overcoming the disadvantages of the traditional income capitalization method that does not include inflation and the instability of income streams; Useful in analyzing important investments for decision making.

• Disadvantages: Using many assumptions, so it requires a lot of information for analysis, forecasting (revenue/expenses) in the future is not easy; The method is very complicated; Appraisers must have many years of experience and high professional capacity.

5. Prestigious machinery valuation company

Currently, Vietnam is in a high process of industrialization and modernization. Along with that is the richness and diversity of the machinery and equipment market. Therefore, the demand for machinery and equipment appraisal in Vietnam is increasing and plays a particularly important role. Therefore, the machinery appraisal service has become a professional, independent and objective consulting service activity, thereby contributing to ensuring the interests of the market participants and affirming its importance in economy.

Experiencing a development process, (TDVC) has affirmed its position and built its reputation; solid brand, and trust with customers and is highly appreciated by organizations, enterprises, and State management agencies. In 2019, Thanh Do was honored to be certified “Prestigious Exclusive Brand – Trademark 2019”. In 2020, Thanh Do was honored with “Prestigious Vietnamese Brand 2020”, and “Trusted Brand 2020”, In 2021 Thanh Do was honored with Top 10 Asia – Pacific Brands, In 2022 Thanh Do Valuation was honored to receives the ASEAN Gold Brand 2022 at SINGAPORE. Besides, TDVC applies the international standard ISO 9001: 2015 for the quality management system in valuation services (real estate, enterprise value, machinery and equipment, investment projects, construction works) making an important contribution to helping customers make accurate decisions in investment, business and transparent trading in the market.

In addition, Thanh Do Valuation Company is currently a reputable partner providing appraisal services for credit institutions such as Vietnam Asset Management Company (VAMC); Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV); The Vietnam Bank for Agriculture and Rural Development (Agribank); Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank); An Binh Commercial Joint Stock Bank (ABBANK); Vietnam Maritime Commercial Joint Stock Bank (MSB); ; Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank); Woori Bank Vietnam (Woori Bank); Industrial Bank of Korea (IBK); Kookmin Bank (KB Kookmin Bank); National Citizen Bank (NCB); Saigon – Hanoi Commercial Joint Stock Bank (SHB); Military Commercial Joint Stock Bank (MBBANK); Shanghai Commercial Savings Bank… Besides, with a nationwide appraisal system: Hanoi, Da Nang, TP. Ho Chi Minh, Can Tho, Hai Phong, Quang Ninh, Bac Ninh, Bac Giang, Thai Binh, Tuyen Quang, Thanh Hoa, Nha Trang, Lam Dong, An Giang, Ca Mau and other provinces across the country, we will certainly fully and promptly meet the valuation requirements of customers nationwide. Thanh Do with the ISO 9001: 2015 international standard certification for the quality management system in the appraisal service will make an important contribution to helping customers make accurate decisions in business, investment and transparent purchases in the market in the context of strong international economic integration recently.

You are reading the article: “Machinery And Equipment Appraisal” in the Appraisal News column of Thanh Do Valuation Joint Stock Company, a leading asset valuation unit in Vietnam.

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