MW Insights – February 2023
Welcome to the February 2023 edition of MW Insights, where we provide our readers with some exciting knowledge and insights in to the world of forensic accounting and business valuations with short and useful updates (as nobody has time for long newsletters!).
February’s topic is: Property, Plant and Equipment Valuations.
MW Insights
In our experience, the parties are often unaware of the significance of property or plant and equipment valuations, however (depending on the situation) the value of the family interest can be significantly understated/overstated.
As a rule, we recommend the parties engage an independent property or plant and equipment valuer when:
- Real property is owned by an entity being valued
- Most small businesses report any property owned at the original cost, and often this can be significantly understated if the property has been held for a number of years. Generally such property is considered non-operating (or surplus) to the trading of the business, so any outdated values reported in the financial statements can have a major impact on the assessed family interest.
- Plant and equipment or other assets comprises a large portion of the reported assets
- Businesses that are heavily reliant on plant and equipment tend to have most of their value tied up in these assets. When assessed on a capitalised maintainable earnings basis, it is common for the value of net operating assets to exceed the assessed business value, meaning the business needs to be valued on a net assets basis – A situation where any plant and equipment that is not valued can impact the family interest.
- Instant Asset Write-Offs and Government Stimulus
- Government stimulus measures were a much-needed booster for the economy (and many businesses) however these same measures have had major impacts on financial statements. We have observed many businesses reporting no or minimal values for plant and equipment despite holding significant amounts of these and reporting abnormal levels of depreciation in the financial statements.
- This presents two issues for the parties: Understated or undervalued assets, and distorted profit and loss results.
- Business valuers can only adjust for the distorted profit and loss results, so it is important to engage a plant and equipment valuer to capture the real value of these assets.
We hope this assists you in knowing when to seek the services of a property or plant and equipment valuer. You can rest assured that we will make a recommendation to the parties whenever we notice one of the above situations.
As always, you can reach out at any time (03) 9816 9122 or email us at advice@mwforensic.com.au if you require our assistance or want to talk Business Valuations and Forensic Accounting.
Regards,
Victoria, Russell, and Joshua