Plant & Machinery Valuation

Asset values in accounts and insurance schedules drift. Equipment is added and never recorded, disposals stay on the register, and replacement costs move while the sum insured does not. The consequence surfaces at the worst possible moment — at the point of claim, or during an audit.

Under-insurance and the average clause

The risk most owners underestimate is not being uninsured but being under-insured. Where the sum insured is less than the full value at risk, most commercial policies apply average: the insurer pays the claim in the same proportion that the sum insured bears to the true value. Insure a plant worth AED 20 million for AED 12 million, and a AED 5 million partial loss may settle at AED 3 million — even though the sum insured comfortably exceeded the loss.

That is why insurers ask for a professional valuation, and why the exercise pays for itself on the first partial claim.

Bases of valuation

The basis determines the figure, and using the wrong one produces a number that is accurate and useless. We establish value on the basis your purpose requires:

• Reinstatement cost newThe cost of replacing the asset with a new equivalent, including freight, duty, installation, commissioning and professional fees. The basis most commercial property and machinery policies are written on.
• Indemnity valueReinstatement cost less an allowance for age, wear and obsolescence — what the asset is worth in its current condition rather than as new.
• Market valueThe amount the asset would realise in an arm's length transaction between willing parties, used for transfer, sale and security purposes.
• Written-down replacement costReplacement cost adjusted for physical deterioration and functional obsolescence, commonly applied in financial reporting where no active market exists for specialised plant.
• Forced sale valueWhat would be realised under a compressed timescale, relevant to lenders and insolvency situations.
• Reinstatement on a day one basisWhere the policy provides for inflation over the reinstatement period, the declared value on which that adjustment is calculated.

How the valuation is carried out

• Physical inspection and identification of assets, item by item, against the existing register where one exists
• Recording of make, model, serial number, capacity, year and condition
• Identification of assets present but unrecorded, and of registered assets no longer present — both are common and both distort the figures
• Assessment of condition, remaining life and any modification affecting value
• Establishment of current replacement cost from supplier data, published indices and transaction evidence
• Application of the agreed basis, with adjustments stated rather than embedded
• Consideration of installation, freight, duty and commissioning, which on process plant frequently exceed the equipment cost itself

What the report contains

• An itemised asset schedule with identification details and individual values
• The basis of valuation applied and the definition used
• Assumptions and limitations stated explicitly, including anything not inspected
• Date of valuation and the price levels it reflects
• Totals by location, department or asset class as you require
• Figures in a form insurers and auditors accept
• Reconciliation against your existing fixed asset register, where provided

When valuations are commissioned

• Insurance placement and renewal, to set or verify the sum insured
• Financial reporting, where assets are carried at revalued amounts
• Acquisition, disposal or transfer of assets between entities
• Securing finance against plant and machinery
• Joint venture formation or dissolution
• Following major capital expenditure that the register does not reflect
• As part of a wider technical due diligence exercise

Independence

ITMAD is an accredited inspection body and holds no interest in the assets valued, the insurance placed against them or any transaction they form part of. We do not broker insurance, trade in equipment, or act on a contingent basis.

Related services

Valuation is frequently commissioned alongside risk engineering surveys, where the same site visit informs both the exposure assessment and the values at risk, and alongside technical due diligence where asset condition and value form part of a wider assessment.