standards of Asset Valuation in this part consists of thirteen content
of valuation standards to be used as a norm for appraisers to comply
with when they professionally evaluate a subject property. In the third
content, there are explanations for appraisers to use as a tool to help
them understand the valuation standards correctly and accurately.
one hand, “Valuation Standards” is a norm in working professionally
that is determined by a good practice, which is accumulated through
personal self conscious or regulations determined by professional
association or law including rule of profession and professional
capability, therefore, it rarely has a tendency to be changed. On the
other hand, “Valuation Methodology” is considered a method or analyzing
technique in valuation which is widely known and used, and tends to be
vary on a frequent basis, appraisers, therefore, are required to
thoroughly study as many as market transactions and properly apply it to
their valuation works.
However, since professional norm of valuation in Thailand is yet to be
clearly agreed by all professions, hence for some content in this
valuation standards is necessarily to state about valuation methods or
valuation techniques in order to constitute a consensus among
1. SALES COMPARISON APPROACH - A set of procedures in which a value indication is derived by
comparing the property being appraised to similar properties that have
been sold recently, applying appropriate units of comparison, and making
adjustments to the sale prices of the comparables based on the elements
of comparison. The sales comparison approach may be used to value
improved properties, vacant land, or land being considered as though
vacant; it is the most common and preferred method of land valuation
when comparable sales data are available.
2. LAND RESIDUAL APPROACH - A method of estimating land value in which the net operating income
attributable to the land is isolated and capitalized to produce an
indication of the land’s contribution to the total property.
3. COST APPROACH -
A set of procedures through which a value indication is derived for the
fee simple interest in a property by estimating the current cost to
construct a reproduction of, or replacement for the existing structure;
deducting accrued depreciation from the reproduction or replacement
cost; and adding the estimated land value plus an entrepreneurial
profit. Adjustments may then be made to the indicated fee simple value
of the subject property interest being appraised.
4. INCOME CAPITALIZATION APPROACH - A set of procedures through which an appraiser derives a value
indication for an income-producing property by converting its
anticipated benefits (cash flows and reversion) into property value.
This conversion can be accomplished in two ways. One year’s income
expectancy can be capitalization at a market-derived capitalization rate
or at a capitalization rate that reflects a specified income pattern,
return on investment, and change in the value of the investment.
Alternatively, the annual cash flows for the holding period and the
reversion can be discounted at a specified yield rate.
5. DISCOUNTED CASH FLOW APPROACH -
The procedure in which a discount rate is applied to a set of projected
income streams and a reversion. The analyst specifies the quantity,
variability, timing, and duration of the income streams as well as the
quantity and timing of the reversion and discounts each to its present
value at a specified yield rate. DCF analysis can be applied technique
and may be performed on either a lease-by-lease or aggregate basis.
Basis of Valuation
of Value. A statement of fundamental measurement principles of a
valuation on a specified date. The principle may vary depending on the
purpose of the valuation.
A Basis of Valuation is not the
statement of the method used, nor a description of the state of an asset
or assets when exchanged. According to the International Valuation
Standards (IVS), 8th edition, 2007, the basis of valuation is divided
into two bases as follows:
I. Market Value Basis of Valuation (IVS 1) Market
Value is the most commonly required basis. The concept of Market Value
reflects the collective perceptions and actions of a market and is the
basis for valuing most resources in market-based economies. Market
Value - The estimated amount for which a property should exchange on the
date of valuation between a willing buyer and a willing seller in an
arm’s-length transaction after proper marketing wherein the parties had
each acted knowledgeably, prudently, and without compulsion. Market
Value of Real Estate is a representation of its market-recognised
utility rather than its purely physical status. The Utility of assets to
a given entity or individual may differ from that which would be
recognized by the market or by a particular industry.
II. Bases Other Than Market Value (IVS 2) Market
Value is the most appropriate basis of value for a wide range of
applications. However, alternative valuation bases may be appropriate in
specific circumstances. It is essential that both the Valuer and users
of valuations clearly understand the distinction between Market Value
and these other bases of valuation and the effects (if any) that
differences between bases may have on the applicability of the
1. Reproduction Cost is
the cost to create a virtual replica of a property using identical or,
if identical materials are not available, similar materials.
2. Replacement Cost estimates
envision a modern equivalent of comparable utility, employing the
design, technology and materials that are currently used in the market.
As above mentioned, a cost estimate for a property may be based on either an estimate of reproduction cost or replacement cost.
3. Forced Sale Value
– A circumstance where a seller is under compulsion to sell and/or a
proper marketing period is not available. The price obtainable under
these circumstances will not meet the definition of Market Value. Rather
the price obtainable will depend on the nature of the pressure on the
seller or the reasons why proper marketing cannot be undertaken. The
price may also reflect the consequences for the seller of failing to
sell within a specified period. The price obtainable in a forced sales
typically cannot be predicted, but will reflect the particular
circumstances of the forced sale rather than a hypothetical exchange
where the seller is acting without compulsion and/or the transaction
occurs after a proper marketing period.
4. Going Concern Value –
The entity is normally viewed as a going concern, that is, as
continuing in operation for the foreseeable future. It is assumed that
the entity has neither the intention nor the necessity of liquidation or
of curtailing materially the scale of its operations.
An operating business.
concern also serves as a valuation premise, under which Valuers and
accountants consider a business as an established entity that will
continue in operation indefinitely. The premise of a going concern
serves as an alternative to the premise of liquidation.
5. Investment Value or Worth
– The value of property to a particular investor, or a class of
investment or operational objectives. This subjective concept relates
specific property to a specific investor, group of investors, or entity
with identifiable investment objectives and/or criteria. The
investment value, or worth, of a property asset may be higher or lower
than the Market Value of the property asset. The term investment value,
or worth, should not be confused with the Market Value of an investment
The term, investment value, is North American usage; worth is Commonwealth usage.
6. Value in Use i) The
present value of estimated future cash flows expected to arise from the
continuing use of an asset and from its disposal at the end of its
useful life. ii) The present value of the future cash flows expected to be derived from an asset or cash-generating unit.
should be noted that the above definitions, which apply to financial
reporting, consider the value of an asset at the end of its useful life.
This meaning differs from the way the term is commonly used in
Property Valuations are required by the Listed Companies for Financial
Reporting Purposes. The Valuers who undertake work of the nature have
to comply with the Accounting concepts and principles underlying the
relevant International Accounting Standards (IAS).
Accounting Standards 1. Valuations under IAS 16 Property Plant and Equipment
as issued at 1 January 2011. Includes IFRSs with an effective after 1 January 2011 but not the IFRSs they will replace.
objective of this Standards is to prescribe the accounting treatment
for property, plant and equipment so that users of the financial
statements can discern information about an entity’s investment in its
property, plant and equipment and the changes in such investment. The
principal issues in accounting for property, plant and equipment are the
recognition of the assets, the determination of their carrying amounts
and the depreciation charges and impairment losses to be recognized in
relation of them.
Property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.
The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if;
(a) it is probable that future economic benefits associated with the item will flow to the entity; and (b) the cost of the item can be measured reliably.
Measurement at recognition;
An item of property, plant and equipment that qualifies for
recognitions as an asset shall be measured at its cost. The cost of an
item of property, plant and equipment is the cash price equivalent at
the recognition date. If payment is deferred beyond normal credit
terms, the difference between the cash price equivalent and the total
payment is recognized as interest over the period of credit unless such
interest is capitalized in accordance with IAS 23.
The cost of an item of property, plant and equipment comprises;
(a) it purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates. (b) any
costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner by
management. (c) the initial
estimate of the costs of dismantling and removing the item and
restoring the site on which it is located, the obligation for which an
entity incurs either when the item is acquired or as a consequence of
having used the item during a particular period for purposes other than
to produce inventories during the period.
Measurement after recognition;
An entity shall choose either the cost model or the revaluation model
as its accounting policy and shall apply that policy to an entire class
of property, plant and equipment.
After recognition as an asset, an item of property, plant and equipment
shall be carried at its cost less any accumulated impairment losses.
After recognition as an asset, an item of property, plant and equipment
whose fair value can be measured reliably shall be carried at a
revalued amount, being its fair value at the date of revaluation less
any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Revaluations shall be made with sufficient regularity
to ensure that the carrying amount does not differ materially from that
which would be determined using fair value at the end of the reporting
2. Valuations under IAS 36 Impairment of Assets as issued at 1 January 2011. Includes IFRSs with an effective date after 1 January 2011 but
not the IFRSs they will replace.
objective of this standards is to prescribe the procedures that an
entity applies to ensure that its assets are carried at no more than
their recoverable amount. An asset is carried at more than its
recoverable amount if its carrying amount exceeds the amount to be
recovered through use or sale of the asset. If this is the case, the
asset is described as impaired and the Standard requires the entity to
recognize an impairment loss. The standard also specifies when an
entity should reverse an impairment loss and prescribes disclosures.
an asset that may be impaired An entity shall assess at the end of each
reporting period whether there is any indication that an asset may be
impaired. If any such indication exists, the entity shall estimate the
recoverable amount of the asset. Irrespective of whether there is any
indication of impairment, an entity shall also; (a) test an intangible asset
with an indefinite useful life or an intangible asset not yet available
for use for impairment annually by comparing its carrying amount with
its recoverable amount. This impairment test may be performed at any
time during an annual period, provided it is performed at the same time
every year. Different intangible assets may be tested for impairment at
different times. However, if such an intangible asset was initially
recognized during the current annual period, that intangible asset shall
be tested for impairment before the end of the current annual period. (b) test goodwillacquired in a business combination for impairment annually in accordance with paragraphs 80-99. If
there is any indication that an asset may be impaired, recoverable
amount shall be estimated for the individual asset. If it is not
possible to estimate the recoverable amount of the individual asset, an
entity shall determine the recoverable amount of the cash-generating
unit to which the asset belongs (the asset’s cash-generating unit).
cash-generating unit is the smallest identifiable group of assets that
generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Measuring recoverable amount The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell its value in use. It
is not always necessary to determine both an asset’s fair value less
costs to sell and its value in use. If either of these amounts exceeds
the asset’s carrying amount, the asset is not impaired and it is not
necessary to estimate the other amount. Fair valueless
costs to sell is the amount obtainable form the sale of an asset or
cash-generating unit in an arm’s length transaction between
knowledgeable, willing parties, less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit. The following elements shall be reflected in the calculation of an asset’s value in use: (a) an estimate of the future cash flows the entity expects to derive from the asset; (b) expectations about possible variations in the amount or timing of those future cash flows: (c) the time value of money, represented by the current market risk-free rate of interest; (d) the price of bearing the uncertainly inherent in the asset; and (e) other
factors, such as illiquidity, that market participants would reflect in
pricing the future cash flows the entity expects to derive from the
Reversing an impairment loss An
entity shall assess at the end of each reporting period whether there
is any indication that an impairment loss recognized in prior for an
asset other than goodwill may no longer exist or may have decreased. If
any such indication exists, the entity shall estimate the recoverable
amount of that asset.
3. Valuation under IAS 40 Investment Property as issued at 1 January 2011. Includes IFRSs with an effective after 1 January 2011 but not the IFRSs they will replace The
objective of this Standard is to prescribe the accounting treatment for
investment property and related disclosure requirements.
is property (land or a building or part of building or both) held by
the owner or by the lessee under a finance lease) to earn rental or for
capital appreciation or both, rather than for: (a) use in the production or supply of goods or services or for administrative purpose; or (b) sale in the ordinary course of business
A property interest that is held by a lessee under an operating lease may be classified an accounted for as investment property provided that: (a) the rest of definition of investment property is met; (b) the operating lease is accounted for as if it were a finance lease in accordance with IAS 17 Leases; and (c) the lessee uses the fair value model set out in this Standards for the asset recognized.
Investment property shall be recognized as an asset when, and only when; (a) it is probable that the future economic benefits that are associated with the investment property will flow to the entity; and he cost of the investment property can be measured reliably. (b) the cost of the investment property can be measured reliably.
An investment property shall be measured initially at is cost. Transaction costs shall be included in the initial measurement.
The initial cost of a property
interest held under a lease and classified as an investment property
shall be as prescribed for a finance lease by paragraph 20 of IAS 17, ie
the asset shall be recognized at the lower of the fair value of the
property and present value of the minimum lease payments. An equivalent
amount shall be recognized as a liability in accordance with that same
The standard permits entities to choose either: (a) a fair value model, under which an investment property is measured, after initial measurement, at fair value with changes in fair value recognized in profit or loss; (b) a cost model, the cost model is specified in IAS 16 and requires an investment property
to be measured after initial measurement at depreciated cost (less any
accumulated impairment losses). An entity that chooses the cost model
discloses the fair value of its investment property.
The fair value of investment property is the price at which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
An investment property shall be derecognized
(eliminated from the balance sheet) on disposal or when the investment
property is permanently withdrawn from use and no future economic
benefits are expected form its disposal.
Gains or losses arising from the retirement or disposal of investment property
shall be determined as the difference between the net disposal proceeds
and the carrying amount of the assets and shall be recognized in profit
or loss (unless IAS 17 requires otherwise on a sale and leaseback) in
the period of the retirement or disposal.
4. Valuations under (IFRS 3) Business Combination
as issued at 1 January 2011. Includes IFRSs with an effective date after 1 Jan 2011 but not IFRSs they will replace.
objective of the IFRS is to enhance the relevance, reliability an
comparability of the information that a reporting entity provides in its
financial statements about a business combination an its effects. It
does that by establishing principles and requirements for how an
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any non-controlling interest in
the acquirer: (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines
what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
Core principle An
acquirer of a business recognizes the assets acquired and liabilities
assumed at their acquisition-date fair values and discloses information
that enables users to evaluate the nature and financial effects of
Applying the acquisition method A
business combination must be accounted for by applying the acquisition
method, unless it is a combination involving entities or businesses
under common control. One of the parties to a business combination can
always be identified as the acquirer, being the entity that obtains
control of the other business (the acquiree). Formations of a joint
venture or the acquisition of an asset or a group of assets that does
not constitute a business combinations.
The IFRS establishes principles for recognizing and measuring the identifiable assets acquired,
the liabilities assumed and any non-controlling interest in the
acquiree. Any classification or designations made in recognizing these
items must be made in accordance with the contractual terms, economic
conditions, acquirer’s operating or accounting policies and other
factors that exist at the acquisition date. Each identifiable asset
and liability is measured at its acquisition-date fair value. Any
non-controlling interest in an acquiree is measured at fair value or as
the non-controlling interest’s proportionate share of the acquiree’s net
The IFRS requires the acquirer, having recognized the identifiable assets, the liabilities and any difference between; (a)
the aggregate of the consideration transferred, any non-controlling
interest in the acquiree and, in a business combination achieved in
stages, the acquisition-date fair value of the acquirer’s previously
held equity interest in the acquiree; and (b) the net identifiable assets acquired.
difference will, generally, be recognized as goodwill. If the acquirer
has made a gain from a bargain purchase that gain is recognized in
profit or loss. The consideration transferred in a business combination (including any contingent consideration is measures at fair value.
general, an acquirer measures and accounts for assets acquired and
liabilities assumed or incurred in a business combination after the
business combination has been completed in accordance with other
applicable IFRSs. However, the IFRS provides accounting requirements
for reacquired right, contingent liabilities contingent consideration
and indemnification assets.
IFRS requires the acquirer to disclose information that enables users
of its financial statement to evaluate the nature an financial effect of
business combinations that occurred during the current reporting period
or after the reporting date but before the financial statements are
authorized for issue. After a business combination, the acquirer must
disclose any adjustments recognized in the current reporting period that
relate to business combinations that occurred in the current or
previous reporting periods.