CHAPTER ONE

INTRODUCTION
1.1 Background

Engineering Assets are tools in the hands of end users for the production of goods and services. The

assets are often acquired at huge amount of money by the owners. Such assets cannot be ignored by

the owners when properties of such owners are being reckoned with.

When engineers’ talk of plant, machinery and equipment valuation, the establishment of the value of

such assets requires professional engineering judgment and that is what engineering valuation is all

about. This is a thorough, explicit application of engineering or mathematical analysis and synthesis

to economic decisions. Engineering valuation is highly essential for the successful management of

both existing business and new project to validate their economic status periodically. Generally,

business from time to time need to take inventory of fixed assets, such as plants, building, vehicles,

equipment, machinery, furniture and office equipment which are subjective to deprecation on daily

basis. This write up tends to report on the valuation process of equipment asset that are being used at

Obkaz Engineering Steel works

1.2 Introduction to the Company

Obkaz Engineering Steel works is a machinery design and metal fabrication company located in

Ibadan, Oyo State. They started operation on the 3rd of June 2001 with the design of a vertical feed

mixer having like 5 staff capacity then,The company was fully registered under the Nigeria company

on 6th of August, 2004. It currently has a staff strength of 15 members.

It was the first fabrication company to design a pulverizer using china pulverizer as the prototype. The

company deals with the design and installation of all post-harvest machine and equipment. It is a choice

1
location for IT students from various institutions for them to be able to see the real life practical of the

theoretical aspect being thought while in school.

1.3 Nature of Company Business

Obkaz Engineering Steel Works is a company that deals with all Agricultural and Food processing

equipment such as feed mixer, Hammer mill, palm oil processing machine, cassava processing

machine, Pulverizer, Extruder etc.They are into Post harvest Engineering, General welding and turning

work, General contract and mechanize.

They do installation of all machines design by them and some import to the country because they

understand the operating system of the machines.

1.4 Engineering Equipment Asset Management Approach of Obkaz Engineering

Steel works

1.4.1 Definitions of Assets

Assets is anything tangible or intangible that is capable of being owned or controlled to produce

value, and that is held to have positive value is considered an Asset. Examples of assets include;

Cash, Stocks, Inventory, Land, Equipment, Building etc. Assets represent Ownership of Value that

can be converted into Cash.

1.4.2 Types of Assets

 Current Assets: These include Cash and other Assets expected to be converted to cash,

sold or consumed such as inventory, receivables etc.

 Fixed Assets: These are the PPE (Property, Plant and Equipment) which include: Land,

Buildings, Machinery, Furniture, Tools, etc.

2
1.4.3 Assets Management System

This is a systematic process of maintaining, upgrading, and operating physical assets: (Property, Plant,

Equipment and Building). This process associate business, engineering & economic theory to alliance

mission.

1.4.4 Obkaz Engineering Steel works Maintenance Strategy

Maintenance Strategy is a long-term plan, covering all aspects of maintenance management, which

sets the direction for maintenance management, and contains firm action plans for achieving a desired

future state for the maintenance function.

Types of Maintenance Strategies include:

 Breakdown Maintenance

 Proactive Maintenance

 Predictive Maintenance or/Condition-Based Maintenance

 Preventive Maintenance +/ Corrective Maintenance

Obkaz Engineering Steel works can boast of a well-planned, nonstop, maximally effective research

operation in a well-organized serene environment as a result of its highly efficient and ultimately

effective equipment asset management approach which can be summarized as shown in table 1.1. The

Monitoring and Evaluation (M&E) section is a unit dedicated to maintenance check of all Obkaz

Engineering Steel works equipment assets. It tracks the productivity and expenditure of all its assets

and records it in the proper section of the company’s financial report

1.4.5 Introduction to MP2 Maintenance Management System

This is a computerized maintenance management system, (CMMS), which delivers various benefits to

organizations, by using various modules for effective asset management, inventory, equipment

3
consistency, and provide maintenance engineers, managers, & decisions makers with accountable data

and analysis.

Table 1.1: Types of Maintenance Strategy Used By Obkaz Engineering

Steel works

Maintenance Strategy Maintenance Approach Description

Type

Breakdown maintenance Fix-it when broke down Large maintenance budget

Proactive Maintenance Detection of Sources of Monitoring and correcting failing

Failures root causes.

Preventive maintenance Scheduled maintenance Periodic component replacement

Predictive maintenance Condition-based Maintenance decision based on

Monitoring equipment condition

Corrective maintenance Cannot be scheduled Type of preventive maintenance

inspection, which, cannot be

scheduled at regular intervals

4
OBJECTIVES

This study is aimed at the problem of valuation of industrial machinery and equipment that are used in

Obkaz Engineering Steel Works (OESW) for their research operation.

In this perspective, the objectives of the study are:

 To estimate the depreciated values at different ages of machines and equipment units whose

service worth is either declining or uniform through their probable useful lives

 To determine and examine the depreciation rate of different machinery and equipment over

their economic useful life

 To estimate the depreciated replacement costs of different machines and equipment (either

declining or uniform service) at different age as an ongoing concern for the company’s record

purpose

 To gather evidences of life and retirement dispersion of the machinery and equipment of OESW

necessary for performing Valuation analyses.

5
 CHAPTER 2

LITERATURE REVIEW

2.1 Background

Engineering valuation is the art and the scientific process of estimating the value of a specific

property or an asset where professional engineering knowledge and judgment are essential. Examples

of such properties are industrial plant, equipment, machinery, mines, factories, building, engineering

constructions of all kinds, public utilities, etc. To put simply, engineering valuation is the process of

putting value on an industrial property by an engineer who has the requisite qualification.

Engineering valuation, among other things is used to determine the value(s) of assets a company owns,

plans to buy or dispose of.

Marston et al defined the fundamental basis of value as:

“The fundamental basis of the value of any specific property is the present worth to the present owner

and to the would-be purchaser, of a probable future services expected from the property during its

probable future productive life in service. The future service may be of such character as to bring an

annual money return to the owner, as in the case of real estate tented; or the future service may be of

value to the owner because of his use of his use of his property, as in the case of food consumed or a

house occupied; or the service may be value to the owner, mainly because of personal satisfaction in

his ownership”.

Winfrey, in talking about the present worth, stated:“The basic principle of the present-worth method

is that the worth today of a property unit is no more or no less than the present worth of the future

6
returns from that unit. Operation of the unit should produce, above current operation expenses and

annual operation returns sufficient to provide a net investment return and a return for depreciation”

2.2 Concept of Value

Marston et al (1968) state that the word value in itself is difficult of precise definition and usage. Value

is a relative term by which the desirability of ownership of the property in question is stated in terms

of other property or money. In most uses of the word value as applied to the property there is implied

by the author or speaker a sense of worth, a desirability of ownership or possession, or the

exchangeability of property as it can be measured in terms of the monetary units of the country the

valuation process is being carried out.

Bonbright (1937) discusses the definitions and the basic concepts of value at length in his treatise on

the valuation of property. Two basic concepts of value emerged from these discussions, namely,

market value and value to the owner. As for market value he states: Our own preference, at least in

the field of appraisal, is for the previous definition of market value, under which a valuation of property

means merely an attempt to estimate the price for which the property could be sold by some stipulated

seller to anyone else the conditions of the assumed sale being left for selection by reference to the

purpose for which the valuation is being made.

For the second concept, value to the owner, Bonbright proposes: The value of a property to its owner

is identical in amount with the adverse value of the entire loss, direct and indirect, that the owner might

expect to suffer if he were to be deprived of the property.

Market value is a rather rigidly defined concept. One alternative way of looking into it is to consider

it a forecast of most probable selling price. When most probable selling price is estimated, the use

pattern in terms of which value is estimated (or selling price is forecast) should be most probable use

rather than highest and best use.

7
2.2.1 Ordinary Valuation

This is used in the ordinary exchange of property,the value is determined by the judgment of the seller

and the buyer, each taking into account the knowledge of the property, the prevailing condition for

such property and his own exigencies and those of the other party.

2.2.2 FORMAL VALUATION

As the property to be exchanged gets more complicated, the practice becomes Formal Valuation

hereby the value is determined by judgment of specially qualified valuators. Real property is usually

the realm where formal valuation is applied, and values are mostly fixed by expert judgment.

2.2.3 Engineering Valuation (E.V.)

This has to do with the art of estimating the value of specific properties with professional engineering

knowledge and judgment. The properties covered under this type of valuation are mines, factories,

buildings, machinery, industrial plant, engineering construction of all kinds and public utilities.

2.3 General Introduction to Engineering Valuation

Engineering valuation is at once the art and the scientific process of estimating the value of a specific

property or an asset where professional engineering knowledge and judgment are essential (Misbau,

2017). Examples of such properties are industrial plant, equipment, machinery, mines, factories,

building, engineering constructions of all kinds, public utilities, etc. To put simply, engineering

valuation is the process of putting value on an industrial property by an engineer who has the requisite

qualification.

Engineering Valuation [EV] is the application of engineering or mathematical analysis and synthesis

to economic decisions. Engineering Valuation is a discussion of the art of the appraisal of industrial

property. The estimation of the monetary measure of the desirability of ownership of commodities and

8
small properties is accomplished daily in the commercial word, often in the informal and intuitive

manner. However, the complex society of the present demands systematic and theoretically correct

procedures when consideration is given to the appraisal of enterprises and properties not regularly

acquired on the market. Today, man’s industrial and business property is so extensive that its value

can be established only by careful study of each factor that gives that property value. Engineering,

economics, finance, and business management are each involved in the process of estimating the value

of enterprises and industrial properties. The value of property is a highly complicated quality and that,

in the end, value is a judgment quantity.

2.4 Purposes of Engineering Valuation

Engineering Valuation is very important for every firm, organization or company. There are three

major reasons for engineering valuation, though not with full details, but, this report assumes a reason

for Obkaz Engineering Steel Work, Ibadan. They include:

• Financial Purposes

• Insurance Purposes and

• Disposal Purposes

2.4.1 Financial Purposes

It is a very important thing to know that Engineering Valuation helps the Company to prepare budgets

and estimate profits, cut costs, reduce expenses, increase income and used for establishment of tax and

record purposes. Valuating an asset gives the Company the idea to know the particular type of spare

parts to buy, what to put money into and what not to. The method of valuation for this is the

Depreciated Replacement Cost Method.

9
 2.4.2 Insurance Purposes

This particular valuation is commissioned by an Insurance broker firm or sometimes by an individual

to know the worth of an asset intended to be insured. There are reasons assets should be insured. An

equipment or vehicle may be insured against theft or damage. The type of insurance is usually

comprehensive and this is traditionally 10% of the present worth of the asset. The method of valuation

for this is the Replacement Cost Method.

2.4.3 Disposal Purposes

When a business is folding up for any reason or that a particular equipment or asset has become

obsolete, valuation of the depreciated value of asset is needed to estimate what the scrap value of the

asset would be. Both the buyer and the seller may commission a valuer to determine the present worth

(PW) value of the facility. The method used in this is the Comparison Method.

2.5 Method of Valuation by a Company

There are three main methods of evaluation that a company can use. They include:

• Replacement Cost Method

• Depreciated Replacement Cost Method

• Comparison Method

2.5.1 Replacement Cost Method

In the insurance industry, Replacement Cost Method is one of several method of determining the

value of an insured item.

Replacement Cost is the actual cost to replace an item or structure at its pre-loss condition. This

may be the 'market value' of an item, and is typically distinguished from the "actual cash value"
10
 payment which includes a deduction for depreciation. For insurance policies for property

insurance, a contractual stipulation that the lost asset must be actually repaired or replaced before

the replacement cost can be paid is common. This prevents over insurance which contributes to

arson and insurance fraud.

If the asset is imported, the replacement cost is estimated from the sum of:

i. The current Ex-Works Price

ii. The freight cost to the nation

iii. Cost of transit insurance;

iv. Freight charges;

v. Port charges (including demurrage if not cleared quickly);

vi. Custom charges;

vii. Clearing agent charges;

viii. Inland transit insurance charges;

ix. Port-to-factory site transport cost; and

x. Installation charges at factory site.

This total sum is the Current Replacement cost of that asset. The Valuer needs to know the

current exchange rate and government tariff for the imported machinery.

2.5.2 Depreciated Replacement Cost Method

This involves 2-stage operations which include:

• Estimate the equipment as new

• Depreciate the value obtained to make allowance for wear and tear, age and obsolescence.

11
 The rate of depreciation is determined from the unexpired economic life of the plant and the gross

current replacement cost. The value obtained is known as existing used value (EUV) and are

economic values, which must reflect the economical production or service capacity of the machine

rather than the cost of replacing the physical entity as in the case of valuation for insurance. In

situations where equipment or a factory is working at less than optimum capacity one needs to use

experience and wisdom in deciding what the depreciation value would be. So the economic

working life is different from the physical working life.

2.5.3 Comparison Method

It provides the market value of an expropriated property by "comparing" it to values obtained in

the open market of similar properties. The appraiser follows three basics steps in arriving at the

value of the property in question:

• Identifying the highest and best use of the property in question

• Identification of similar properties that are previously sold

("the comparable sales")

• Adjusting the value of the comparable sales.

2.6 The Present Method used at Obkaz Engineering Steel Works

Obkaz Engineering Steel Work (OES) is a Fabrication Company that deals with different Agricultural

and Processing machine, OES makes use of much mechanical and electrical equipment, man power

inputs, and many other resources.

12
This report is looking into Obkaz Engineering Steel Works using the Depreciated Replacement Cost

Method. Every production equipment of OES from the Generator that uses fuel, oil, gaskets, and many

other spare parts to the lathe machine, drilling machine, electric grinding machine, welding machine

and many other equipment.

As a result of the company fabricating different machine using different machine and equipment, we

understand from mechanics that machine parts wear out over usage, friction, fatigue and stress causes

the machine parts to become affected needing proper maintenance or better still replacement. This

makes the company to spend some particular amount on maintenance and repair.

The company makes use of the financial purpose to know the rate of depreciation and determine the

unexpired economic life of a plant and in evaluating their assets so proper budgeting can be made for

successive years.

2.7 The Data Source, Equipment Manufacturer, Class of Industry

The valued assets are described below:

i. Electric Grinding Machine

Manufactured by Kulkarni Power Tools LTD

ii. Drilling Machine 9 spindle speed 140/1940 rpm

Manufactured by Warren Machine Tools.

iii. Hand Drilling Machine 13mm impact drill

Manufactured by Kulkarni Power Tools LTD

iv. Welding Machine BX6-300A

13
 Manufactured by Kalerda Group Co. , LTD

v. Heavy Duty Bench Sharping Machine C-8001

Manufactured by Kulkarni Power Tool LTD.

vi. 180mm Heavy Duty Sander / Polisher

Manufactured by Kulkarni Power Tools LTD.

vii. Drilling Machine ZJ4116

Manufactured by Drill Press

2.8 Depreciation

Baum (1991) defines depreciation as a loss in the existing value of property and attributes the causes

to physical deterioration, functional obsolescence or aesthetic obsolescence. Mansfield(2000) also

notes that property-based depreciation is the result of two negatives processes physical deterioration

and obsolescence. Barreca (1999) classifies depreciation into three classes namely physical

depreciation, functional depreciation and other economic losses. These three views of depreciation

obviously have something in common and that is the fact that depreciation is the result of physical

deterioration, functional and economic obsolescence.

From a business viewpoint, a physical asset has value because one expects to receive future monetary

benefits through its possession and use. These benefits are in the form of future cash flows resulting

from

• The use of the asset to produce saleable goods or services, or

• The ultimate sale of the asset.

14
It is because of these anticipated cash flows that an asset has commercial value.

Depreciation, then, represents an estimate of decrease in an asset’s value because its ability to produce

future cash flows will, most likely, decrease over time. Depreciation differs from other costs in several

respects.

First, though it’s actual magnitude cannot be determined until the asset is retired from service, it always

is paid or committed in advance. Thus, when we purchase an asset, we are prepaying all the future

depreciation cost.

Second, throughout the life of the asset we can only estimate what the annual or periodic depreciation

cost is. Consequently, we must estimate the depreciation cost in engineering economy studies.

Obviously, such estimates will not be entirely accurate, but this should not be too disturbing in as much

as the same is true of virtually all other cost items in an engineering economy study.

A third difference is the fact that while much usually can be done to control the ordinary out-of-pocket

cost, such as labour and material costs, relatively little can be done to control depreciation cost once

an asset has been acquired, except, perhaps, through maintenance expenditures. Further, many of the

factors that affect depreciation costs are external to the person or organization that owns the asset. If

future conditions change and the demand for a product decreases, there may a decline in the amount

of material used, and probably a decrease in the profits. However, the depreciation cost, having been

prepaid, may continue as before, and the result may be a loss of capital through failure to recover what

has been prepaid.

2.8.1 Estimation of Depreciation

Depreciation can be estimated in three ways

• Straight line method

15
 • Double Declining balance method

• Reducing/Declining method

Straight-Line Method

The straight-line method of computing depreciation assumes that the loss in value is directly

proportional to the age of the asset. This straight-line relationship gives rise to the name of the

method. The following definitions are used in the equations below. If we define:

(𝑩 − 𝑺)
𝒅𝒌 =
𝑵

𝑲 × (𝑮𝑹𝑪 − 𝑺)
𝑫𝒌 =
𝑵

𝑩𝑽𝒌 = 𝑩 − 𝑲𝑫𝒌

K= Number of years of usage

N = depreciable life of the asset in years

B = unadjusted cost basis

dk= annual depreciation deduction in the kth year (1 ≤ k ≤ N)

BVk= book value at the end of year k

S = Salvage value at the end of the depreciable life of the asset

Dk= cumulative depreciation through year k

GRC= Gross Replacement Cost

This method of computing depreciation is widely used. It is simple and gives a uniform annual

16
 depreciation charge. Its proponents argue that in as much as other costs, as well as the depreciable

life, must be estimated, there is little reason for attempting to use a more complex formula.

The Double Declining Balance Method

In the declining balance method, sometimes called the constant percentage method or the Matheson

formula, it is assumed that the annual cost of depreciation is a fixed percentage of the book value at

the beginning of the year. The ratio is the depreciation in any one-year to the book value at the

beginning of the year is constant throughout the life of the asset and is designated by R (0 ≤ R ≤ 1). In

this method R = 2/N when, for example, 200% declining balance is being used, and N equals the

depreciable life of an asset. The following relationships hold true for the declining balance method:

Even though the declining balance procedure is rather simple to apply, it has two weaknesses. The

annual cost of depreciation is different each year a from a calculation viewpoint, this is inconvenient.

Also, with this formula and asset can never depreciate to zero value because the salvage value (S) is

not utilized in equations. This is not a serious difficulty since a switch from the declining balance

method to any slower method of depreciation (such as straight-line) can be made so that a zero (or

some other) book value in year N is reached.

Proponents of the declining balance method assert that its results more nearly parallel the actual market

value of an asset than do those obtained by the straight-line method. This undoubtedly is true in the

case of such things as automobiles, where new models and style changes are large factors in the

establishment of the market value. However, it may not be true of many industrial and commercial

structures and some equipment.

17
Reducing/Declining Balance Method

Because the declining balance method never reaches a book value of zero, it is permissible to switch

from this method to the straight-line method so that an asset’s BVN will be zero (or some other desired

salvage amount).

2.8.2Types of Depreciation

Depreciation, or the decrease in value of an asset, has several causes, some of which are very difficult

to predict or anticipate. Decreases in value with the passage of time may be broadly classified as

follows:

• Normal depreciation: Which is divided into two namely

(a) Physical

(b) Functional.

• Depreciation due to changes in price level.

Physical Depreciation

This is the depreciation due to lessening of the physical ability of a property to produce results.

Its common causes are wear and deterioration. These cause operation and maintenance costs to

increase and output to decrease. As a result, the profits may decrease. Physical depreciation is

mainly a function of time and use.

Functional Depreciation (Obsolescence)

It is the decrease in value that is due to the lessening in the demand for the function that the

property was designed to render. This lessening may be brought about in many ways: Styles

change, population centres shift, more efficient machines are produced, or markets are saturated.

18
Also, increased demand may mean that an existing machine is no longer able to produce the

required volume; this inadequacy is another cause of functional depreciation. It is difficult to

determine than physical depreciation.

Depreciation due to Changes in Price Levels

It is almost impossible to predict and is seldom accounted for in engineering economy studies.

When price levels rise during inflationary periods, even if all the capital invested at the time of

original purchase has been recovered, this recovered capital will not be sufficient to provide an

identical replacement. Although there has been a recovery of the invested capital, the capital has

decreased in value. Thus it is the capital, not the property that has depreciated. Inflating annual

depreciation to compensate for this phenomenon is not permitted in determining profits for

income tax purposes.

19
 CHAPTER THREE

METHOD OF VALUATION
The method of valuation adopted is the depreciated replacement cost method on the presumption that

the facility will be an ongoing concern and that the resulting value will be an estimate of the existing

use value of the asset as defined in the condition and assumptions relating to this document.

Depreciation is calculated using the straight–line method which relies on the Modified Accelerated

Cost Recovery System (MACRS) classification.

The basis of valuation is to determine the open market value of the property in its existing use state.

This will be determined by using the Depreciated Replacement Cost Approach.

20
3.1 List of Engineering Equipment Asset in the Company to be evaluated.

Table 3.1. List of Equipment, date of purchase and estimated price the equipment.

S/N Name of Asset Number Age/Number Estimated

Of Years cost
1. Lathe Machine 1 14 250,000

2. Welding Machine 2 9 100,000

(Full Copper)250Amp

3. Welding Machine 6 4 30,000

(Full Aluminium)300
Amp

4. Drilling Machine 2 12 100,000

(3phase)

5. Hand Drill 2 6 25,000

6. Gear pillar Drill 1 5 120,000

7. Manual Rolling 1 8 70,000

Machine

8. Grinding Machine 4 3 28,000

9. Painting Machine 1 5 45,000

10. Small size 6 2 30,000

Electric Motor

11. Diesel Engine 10 3 45,000

12. Diesel Generator 2 4 80,000

2phase

13. Single Phase 1 5 700,000

Generator

14. Bench Sharping 2 5 18,000

Machine

21
Table 3.1 List of Equipment, date of purchase and estimated price the

Equipment(Cont’d)

15. Welding Tong 10 3 2,000

16. Oxyacetylene gas 1 6 20,000

17. Hammer 4 6 7,000

18. Big Vice 1 5 30,000

19. Small vice 2 8 25,000

20. Mallet 2 1 3,500

21. Laptop 1 2 120,000

22. Auger Fork 6 5 3,000

23. Welding Glasses 8 3Months/0.25 1,500

24. Cutting/Grinding 8 4Months/0.33 500

Glass

25. Fan 4 3 5000

26. Furniture 6 5 10,000

(Chair/Table)

27. Benches 10 5 5,000

28. Welding Shield 2 2 5,000

29. Pick up Van 1 10

1,500,000

22
3.2 Valuation Analysis

The value to be determined is the existing use value of the property. The Straight Line Method will

be used to calculate the depreciation of the properties.

Assumptions of the straight line method:

The straight line method assumes that the loss in value is directly proportional to the age of the asset.

Thereis uniform annual depreciation charge.

𝑮𝑹𝑪
𝒅𝒌 =
𝑵

𝑲 × (𝑮𝑹𝑪 − 𝑺)
𝑫𝒌 =
𝑵

𝑬𝑼𝑽 = 𝑩𝑽𝒌 = 𝑮𝑹𝑪 − 𝑫𝒌

Where,

Dk = Cummulative Depreciation though Year K

K = Number of years of usage

N = Useful Life

S = Salvage value

EUV = Existing Use Value

GRC = Gross Replacement Cost

23
The computation of the EUV for an Electric Grinding Machine

GRC = ₦ 28,000

S = nil

N =5

K =3

𝑮𝑹𝑪 𝟐𝟖𝟎𝟎𝟎
dk= = = 𝑵𝟓, 𝟔𝟎𝟎
𝑵 𝟓

Dk= 𝑑𝑘 × 𝑘 = 𝑁 560 × 3 = 𝑁16,800

EUV = BVk=GRC– Dk= 𝑁28,000 − 𝑁16,800 = 𝑁11,200

EUV= N11,200

The open market value of the Electric Grinding Machine is # 11,200.

Similar computations were carried out for every other asset.

24
3.2.1 PHYSICAL CHARACTERISTICS
Name of Machine: ElectricGrinding Machine

Model Number: KPT22-230

Serial Number: 839-02253

Part No: 740594

Capacity and Type:

• 230mm angle grinder

• 2200W

• 6600rpm

• 4.7 kg

Company Name: KULKARNI POWER TOOLS LTD

CIN: L29130MH1976PLC019147

Date of Purchase: 10-09-2015

Manuals Available or on file: AVAILABLE

Age at Time of Purchase: NEW

Extra or Optional Attachment: Carbon Brush

Controls: HUMAN MACHINE INTERFACE (HMI).

25
 CHAPTER FOUR

RESULTS AND DISCUSSION

4.1 Table and Graph of Results Obtained

About the value of property, Babcock5 writes:

“It is necessary to emphasize that it is not the income productivity of property which

produces its value but rather its anticipated or expected income productivity. The

occurrence of the income subsequent to the evaluation is therefore anticipated rather than

actual. Thus, in the development of a valuation theory we commence with the principle

that the process of valuation will consist of translating anticipated future income into

present capital value. The Value of a real property must be from its estimated future net

income.”

26
Table 4.1. Results of Computation Carried Out

Name of Number Original Economic Effective Depreciation Existing

Total
asset installed useful years Dk use
Cost life (₦) value
Lathe 1 250 000 25 14 140 000 110 000 110
000
Machine

Welding 2 100 000 15 9 60 000 40 000 80 000

Machine
(Full Copper)
250amp

Welding 6 30 000 12 4 12 000 18 000 108

Machine(Full
Aluminium)
300Amp

Drilling 2 100 000 20 12 60 000 40 000 80

000
Machine
(3phase)

Hand Drill 2 25 000 15 6 10 000 15 000 30

000

Gear Pillar 1 120 000 10 5 60 000 60 000 60

000

Rolling 1 70 000 20 8 28 000 42 000 42

000
Machine

Grinding 4 28 000 5 3 16 800 11 200 44

800

27
Machine
Painting 1 45 000 12 5 18 750 26 250 26

250

Small Size
Electric Motor 6 30 000 5 2 12 000 18000 108

000

Diesel Engine 10 45 000 12 3 11 250 33 750

337500

Diesel 2 80 000 12 4 26 666.67 53 333.33 106

667
Generator
(2phase)

28
Table 4.1. Results of Computation Carried Out(Cont’d)

Single Phase 1 700 000 15 5 233 333.33 466 666.67 466 667
Generator

Bench 2 18 000 10 5 9 000 9 000 18 000

Grinding

Welding Tong 10 2 000 3 3 1200 900 9 000

Oxy-acetylene 1 20 000 15 6 8 000 12 000 12 000

Gas

Hammer 4 7 000 10 6 4 200 2 800 11 200

Big Vice 1 30 000 10 5 15 000 15 000 15 000

Small Vice 2 25 000 15 8 13 333.3711 666.67 23 332

Mallet 2 3 500 3 1 1 166.67 2 333.33 4 666

Laptop 1 120 000 5 2 48 000 72 000 72 000

Auger Fork 6 3 000 15 5 1 000 2 000 12 000

Welding 8 1 500 1 3months/0.25 375 1 125 9 000

Glass

Cutting/ 8 500 1 4months/0.33 166.67 333.33 2 666.6

Grinding Glass

Fan 4 5 000 5 3 3 000 2 000 8 000

Furniture 6 10 000 10 5 5 000 5 000 30 000

(Chair/Table)

Benches 10 5 000 10 5 2 500 2 500 25 000

Welding 2 5 000 5 2 2 000 3 000 6 000

Shield

Pick up Van 1 1.5m 20 10 750 000 750 750000000

29
The Table 4.1 above gives details of some of the important machines in the company, their useful
life and Existing Use Value.

30
 EUV against Years used
1600000

1400000

1200000

1000000

800000

600000

400000

200000

0
0 4 8 12 16 20

Figure 4.1 : Graph of EUV against years used

31
 CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

From the analysis in chapter four of this report, the open market value of the company is ₦2,857,749.

The current value of the company equipment is relatively lower than the expectation; this means the

equipment asset approaches the useful lives specified by their manufacturer, which also means that the

assets are ageing.

Based on this report carried out, the following actions are recommended

• Timely replacement of old equipment and proper maintenance of recent purchased equipment.

• Proposed valuation models was shown to be the bestway to make precise budgets,cut cost, buy

necessary spare parts and use the excess funds for other investments.

• There is a need to develop a general valuation model for Obkaz engineering Steel works that

shows which assets’ productivity for the company are uniform or declining with age.

• It was also noted that proper handling was necessary, as some company assets wore out far too

quickly, due to abuse or improper use. For example, it was noted that Welding Tong were

usually dropped carelessly on the ground when temporarily out of use, hence leading to a

shorter economic life as seen by past experiences.

• Probable service life estimated for groups of machinery and equipment studied fell between 4

and 10 years.

• The University should issue a cover letter to students before the commencement of the

Industrial Training, Many companies may believe that students who request information about

their assets are being meddlesome or invading the company’s privacy. This is largely because

32
many institutions do not require their students to undertake valuation exercises during their

industrial training locations. In this area, I think a cover letter from the school management

might alleviate all fears and smooth the receptiveness of the company to the student.

33
REFERENCES
Asset https://www.investopedia.com/terms/a/asset.asp#ixzz54MCqzbS9 accessed on 16

January 2018

Asset Management https://en.wikipedia.org/wiki/Asset_management 16 January 2018.

Marston, A., Winfrey, R., and Hempstead, J., "Engineering Valuation and Depreciation,"

Iowa State University Press Ames. Iowa, 1968.

E.O Edwards in "Depreciation and Replacement Policy," J. L. Meij. Ed., Quadrangle

Books, Chicago, 1961.

F. M. Babcock, "The Valuation of Real Estate," McGraw-Hill Book Company, New York,

1932.

Baum, A (1991), Property Investment Depreciation and Obsolescence, London, Routledge

Barreca, S.L., (1999) Assessing Functional Obsolescence in a Rapidly Changing

Marketplace, Barreca Consulting and Research Inc., Birmingham, US.

Mansfield, J. (2000), Much misunderstood: a critical evaluation of the term obsolescence,

the Cutting Edge 2000.

Replacement costhttps://en.wikipedia.org/replacement.value 14 April 2018

Thomas J.E, Wilson B. (2005). The Indemnity principle:Evolution from a financialto a

functional paradigm. Journal of Risk Management and Insurance.

BonWright I.W.,(1937) “The Valuation of Property.” McGrawHill Book Company, New

34
 York.

Babcock, F. M., (1932). “The Valuation of Real Estate,” McGraw-Hill Book Company,

New York.

Bonbright I. W., (1937). "The Valuation of Property," McGrawHillBook Company, New York.

Marston, A., Winfrey, R. and Hempstead, J., (1968). “Engineering Valuation and

Depreciation,” Iowa State University Press, Ames. Iowa.

Misbau, A. L., (2017). “Law and Engineering Valuation,”Department of Law, ObafemiAwolowo

University, Ife.

Ugochukwu, N. P., (2017). "Cost and Valuation Engineering,"Nigeria Society of Engineer journal.

Vol12, 23.

Winfrey, R., (1923). “Depreciation of Group Properties,” Iowa State University

Engineering Research Institute Bulletin 155.

The International Institute of Tropical Agriculture, (2012).“2012-2020 refreshed strategy

journal”.

Brandeis,J. (1923) “Southwestern Bell Telephone Co. V. Public Service Commission of Missouri”,

262 U.S. 276 at 289.

35
 APPENDIX 1

Plate 1: Lathe Machine

36
 APPENDIX 2

Plate 2:Single Phase Diesel Generator

37
 APPENDIX 3

Plate 3: Three Phase Drilling Machine

38
 APPENDIX 4

Plate 4: Welding Machine (Full Aluminium Winding -300Amp)

39