Machinery Valuation

The technical valuation report is based on numerous characteristics and situations that, when grouped together, generate a product, a final result of the value of the valued asset, among some important factors are: cost and mainly its utility. Among the best valuation techniques, the experience of the valuating engineer, scientific and normative rules.

The Brazilian Standard ABNT NBR 14653-5:2006, Valuation of assets – Part 5: Machinery, equipment, facilities and industrial assets, and complements the normative procedures contemplated in ABNT NBR 14653-1, in the aspects that refer to the valuation of machinery, equipment, facilities and industrial assets in general. In order to compose our machinery and equipment valuation reports, all the considerations and determinations of the technical standard are taken into consideration.

Value, Cost and Price

The words value, cost and price have different meanings: price is the amount paid by the buyer to the seller and cost is the price paid plus all other expenses incurred by the buyer in acquiring a certain asset. The cost of a machine or equipment is not necessarily equal to its value, although it is proof of value. On the other hand, when investigating the value of a machine, one seeks to know both the original cost and the replacement value.

Machinery and Equipment Valuation

In the first instance, the appraiser will have to verify the purpose for which the valuation report is intended – be it  security interest, mortgage, taxation, inventory, fixed asset valuation – as different values may arise depending on the focus of the problem.

The objective of the valuation, for most cases, is to find the trend to the Fair Market Value or weighted average of the market, i.e., to obtain the fair market value of a certain asset in its state of conservation and useful life at the time of valuation.

Usual directions for machinery and equipment valuation:

  1. a) – Market information;
  2. b) – Income that the machine or equipment can produce;
  3. c) – Cost, less depreciation.

The first way, although the most accurate, is not always possible for the machine or equipment to be valuated.

The second way allows the analysis of the profitability of a certain asset, however, highly subjective and unstable, in a globalized market where it is not possible to know all the relevant information and the real situation of cost variations due to changes in the value of inputs, taxes, exchange rate variations, etc.

The third way, although not the most exact, allows a great approximation of the value of a certain asset, which is the purpose of the valuation. This process consists of determining a mathematical curve that links the price of the new machine or equipment to the residual value (scrap or salvage) throughout its useful life.

Basic Concepts

Useful life

Time foreseen between the start of operation of a certain machine or equipment and its withdrawal from service, already totally depreciated, that is: with only the residual value.


The loss of value of a given asset over time. Depreciation occurs due to three main reasons: Deterioration, obsolescence, and utility loss

Deterioration is the physical loss of value;

Obsolescence is the loss of value for technical and economic reasons; and Utility loss is the loss of functional value.

Life Expectancy

Time foreseen between the examination or inspection and the probable date of withdrawal from service

Apparent life

Time estimated by the appraiser, usually the result of the difference between Useful Life and Life Expectancy purposes

As specified by the contracting party, the purpose of the present work is the valuation of the personal property components of the fixed assets, in order to determining the fair value and determining the estimated useful life of these assets for purposes of depreciation, in compliance with the provisions of art.

183, paragraph 3 of Law No. 11.638 of December 28th, 2007 and in the Technical Pronouncements of the Accounting Pronouncements Committee (CPC), especially CPC No. 01 –
Value Reduction to the Recoverable Value of Assets, CPC No. 04 – Intangible Assets, CPC 27 – Fixed Assets and other Technical Pronouncements and Guidelines of the CPC related to tangible and intangible fixed assets, in addition to the Brazilian Technical Accounting Standards (NBCT) and resolutions and acts of the Securities Commission (CVM)..
normative references

According to item 6 of Technical Pronouncement CP – 27, transcribed below, fair value is defined as follows:
“Fair value is the value by which an asset can be negotiated among interested parties, knowledgeable of the business and independent of each other, with the absence of factors that put pressure on the settlement of the transaction or that characterize a compulsory transaction”
According to item 3.91 of NBR 14653-4, Brazilian Standard for Valuation of Assets – part 4 – Enterprises, transcribed below, book value is defined as follows:

“Sum of the market values of the assets that make up the permanent assets of the enterprise. In the impossibility of identifying the market value of any asset component of the enterprise, its best approach is considered: reissue cost, economic value or disassembly value”.
Complementing the definition above, it is also important to present the definitions of market value, economic value, disassembly value and reissue cost, as follows:
Market Value, according to item 3.44 of NBR 14653, part 1:
“Most likely amount for which an asset would be voluntarily and consciously negotiated, on a reference date, within the prevailing market conditions”.
Disassembly Value, according to item 3.89 of NBR 14653, part 4:
“Present value of net income receivable from the sale of the assets which compose the enterprise, on the condition of their deactivation”.
Cost of reissue, according to item 3.9.3 of NBR 14653-4, part 1:
“Cost of reproduction, discounting the depreciation of the asset in view of its state”.
In this work the fair value will be treated as market value and the development of the valuation procedure will be based on the premises Determined by NBR 14653 – Brazilian Valuation Standard for Assets – Part 5: Machinery, equipment, facilities and industrial assets in general.

Degree of aggregation and type of value
In compliance with item 7.1.3 of NBR 14.653-5-2006 and according to table 1, the table below demonstrates how the purpose of the valuation is associated with its degree of aggregation and type of value.

Equity and Fixed Assets Revaluation Industrial/Commercial Unit Cost of reissue

Market value

1 – Linear Method
2 – Cole or Sum of Digits Method
3 – Constant Percentage Method
4 – Sinking Fund
5 – Other Methods

This method establishes a constant depreciation over time. The straight line represents the simplest of the curves, where the depreciation in each period is always equal and corresponds to the total depreciation divided by the number of periods of the expected useful life.
The Linear Method is also used in tax accounting.
However, despite its extreme simplicity, the depreciation of machinery and equipment is not a linear function of time, being more accentuated at the beginning than in the last years of estimated life, due to wear and tear, insecurity about the use and the loss of warranty, whose value was added to the price of the equipment when new.

This method, also known as the series or sum of digits method, establishes the empirical depreciation in each period according to the series:

N = Number of periods
The fixed base is equal to the total depreciation value, which is the difference between the value of the new and the residual value at the end of the depreciation.

It should be noted that in this method the depreciation in the first periods is higher than in the last ones, a fact quite close to the practical reality.

This method establishes a constant percentage and continuous depreciation in each period, equal to the value of a calculated rate applied to the residual value of the previous period, i.e.: the depreciation at the end of a period is equal to the product of the residual value at the beginning by the calculated rate, being the value of the rate function of the amortization time, of the value of the asset when new and the residual value or scrap value.

Due to the type of calculation, extremely repetitive and with a large number of decimal places, the application of this method must be done with the aid of a computer. The values calculated by this method are good approximations of the market reality when compared to those obtained through market researches of used machinery and equipment.

An imaginary fund is determined where the depreciated amount would be applied, and it should yield interest previously established as the value that an industrial company obtains as a return on its invested capital. At the end of the equipment’s useful life the investment value should correspond to the purchase price of the new equipment, giving as an inflow the invested value, equivalent to the residual value of the used equipment.

Among the several other methods, the mathematical model developed by Eng. Hélio R. R. de Caires, which calculates the depreciation of a machine using a function dependent on the variables Maintenance and Work regime, in addition to operational age and replacement value. The principle is based on the premise that the concept of useful life must be established in order to distinguish durability from economic useful life.
This model is particularly useful for valuation calculations of machinery and equipment subject to severe operating conditions or under poor maintenance conditions, when these factors may have a decisive influence on the final result of the valuation.

  • Those in charge of asset valuation are graduated in engineering, finance, and accounting. Together, they constitute one of the largest, most diversified and most experienced teams specialized in equipment valuation;
    • Our offices and consultants are strategically located throughout the country and also abroad, ensuring the best of actual techniques and regulations and expertise in order to better serve local or international requirements;
    • We have a comprehensive experience for all industrial sectors, which allows us to valuate a diversity of assets, from the most usual to highly specific equipment.
    • We are committed to applying the appropriate methodology, best practices and state-of-the-art technology, which guarantees the delivery of reliable results that are appropriate to the needs of your business.
    Our work consists of physical inspection of the corresponding asset, and then proceed with the composition of the technical valuation report.