valuation economics

1. WHAT IS VALUATION?
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Valuation is
the
determination
of monetary
value at some
specific date,
of the
property
rights
encompassed
in an
ownership.
Property
rights means
the exclusive
right to
possess,
enjoy &
dispose
Valuation
requires
application of
logical principles
and tested
methods leading
to estimate of
value under
given
circumstances.
In short,
valuation is both
science as well
as art.

2. DIFFERENTIATING
COST,PRICE,VALUE
▪ Cost is the amount required to produce or
acquire some goods or services. It is either
estimated in advance or it is a fact if incurred.
▪ Price is the amount asked or paid for some
goods or services. Price becomes cost to the
buyer and it is a fact.
▪ Value is an estimate of the price what it ought
to be. Value is present worth of future benefits
of Income.
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PRICE
VALUE
COST

3. FOUR PILLARS OF VALUE
UTILITY
The capability to satisfy
a future owner’s needs
and desires.
DEMAND
The need or desire for
ownership supported
by access to finances
that satisfy the need.
TRANSFERABILITY
The ease by which the
ownership can be
transfered.
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SCARCITY
The finite supply of
similar properties.

4. PURPOSE OF VALUATION
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2)
1)
6)
4)
5)
3)
Sale or Purchase of the property
Individual, Trust or Company
Land Acquisition
Bank Loan/Mortgage/Security
Liquidation/Auction
Under Income Tax Act (Capital
Gain Tax)
Insurance Purpose
Under Companies act

5. HISTORICAL
COST
Historical cost is the price paid for an
asset when it was purchased. Historical
cost is a fundamental basis in
accounting, as it is often used in the
reporting for fixed assets. It is also
used to determine the basis of potential
gains and losses on the disposal of
fixed assets..
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6. CURRENT
COST
Current Cost / Fair market value is
the current value of that asset.
Imagine if someone were to have
purchased an acre of land 10 years
ago for Rs.1,00,000 and that land is
now worth Rs 20,00,000. The
historical cost is Rs1,00,000, and
the fair market value/Current Cost
is Rs 2,00,000.
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