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Physical Property Valuation (Book Value (Accounting assumption that a…
Physical Property Valuation
Book Value
Accounting assumption that a portion of that asset’s useful life has expired
Long-term asset’s book value is lower than its market value
Depreciation decreases the book value
Risk management professionals do not rely on book value for valuing property
Is based on its historical cost
Financial statements use the historical cost method for most assets
Market Value
Most appropriate for valuing products that are relatively indistinguishable from one another
Agricultural products
Oil
Precious Metals
Also used for the valuation of automobiles
Replacement Cost
Qualified property appraisers estimates replacement costs
Construction costs to replace a building can be estimated with a high degree of accuracy
Simplified method is also know as the unit-cost method of appraisal
Risk management professional often finds replacement cost the appropriate basis for valuing personal property
Functional replacement cost is used when valuing property that is easily affected by technological changes
Economic Value
Relinquishing this right of present occupancy to secure a rental income increase the landlord’s economic value interest
is not affected by the cost of the property or the expense that would be incurred to repair or replace it
it focuses on the effect that the loss of the property would have on the organization’s future income and net worth