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Pitfalls in the valuation of specialised in situ fixed assets for tax and duty purposes
Published on 01 Jun 15 by "THE TAX SPECIALIST" JOURNAL ARTICLE
The valuation of specialised in situ fixed assets, such as a steel plant or an airport, is a complex and often controversial valuation exercise, but has important tax and duty consequences. The commonly-adopted bottom-up valuation approach, which assesses the market value of the collection of specialised in situ fixed assets as the sum of the assessed market value of the building improvements plus the assessed market value of the underlying land, however, has at least three pitfalls. First, it implicitly and incorrectly assumes that the going concern business which employs the specialised in situ fixed assets always has material goodwill value. Second, it overlooks the evolutionary nature of asset value. Third, it overlooks the relationship between size and highest and best use in assessing the value of the underlying land component. This article examines these problems in turn and suggests solutions designed to achieve a correct valuation outcome.
Author profile
Dr Hung Chu
Hung is a Director of Lonergan Edwards & Associates Limited. Dr Hung Chu completed his master degree in Finance and Banking (with Merit among the top 2% of graduates) from the University of Sydney and his doctoral degree in Finance from the University of Technology, Sydney (graduated on Chancellor's List for Exceptional Scholarly Achievement in PhD research). He has 12 years of experience in the provision of valuation services and numerous technical papers published in academic and practitioners' journals. - Current at 11 July 2019
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