Hi all, Is there any difference between Cost Equipment Valuation Approach and Income Equipment Valuation Approach /??
YES.........for example .......if you buy a used Dozer for 500$ ........but rent it out for $100 a hour...........if you use the Cost Equipment Valuation method your Dozer has a asset value of $500 before depreciation.........if you use the Income Equipment Valuation Method its value will be much higher due to its $100 a hr rate....... If your going to a banker for a loan you want to use the higher of the two methods..........if your doing tax work you must use the cost method.....
You should probably state what you are doing as these terms mean many different things to many different people depending on many different uses. An Income Value Approach is using a prediction of future revenue that the asset is likely to produce. Say you purchase the asset for $500, and you rent it out for one hour at $100 per hour. That does not mean the machine is now worth $600. It means your cost in the machine is now $400. The Income Approach is projecting the stream of revenue. You might us this for a business plan in hopes of persuading a banker to loan you money for a new operation. The Cost Approach is generally used for insurance purposes as in a Replacement Cost in case of a Total Loss claim. If you are being stepped on by a revenue service the taxing authority will determine the valuation method and they provide the courts with the definition of value that they want used. The approach most people are concerned about for heavy equipment is Market Value which uses a Sales Comparison Approach to value.