Equipment Appraisal Blog | Understanding Machinery Appraisals

Whether you need a machine appraisal for insurance purposes or want to better evaluate the worth of a used oil rig up for auction, an oilfield equipment appraisal can help determine the fair value of equipment in the current market. Learn how an equipment appraiser might value a piece of machinery to better understand the equipment values of assets you own or are considering purchasing. 

How Fair Value is Determined for Oil and Gas Equipment 

• Physical deterioration - An appraiser will review the piece of equipment, taking note of its physical condition. The old adage about never judging a book by its cover applies well to machinery appraisals. Even if an oil rig engine looks old and shows visible wear and tear, these are not necessarily an indication of a low value. Appraisers will typically review maintenance records and inventory for oil and gas equipment before making a value determination. Equipment that was well maintained, or has spare parts on hand in the warehouse, might receive a higher value accordingly. 
• Replacement cost - An appraiser might gauge how much it would cost to purchase an equivalent rig or tanker new, and then deduct from this cost based on the condition of the used equipment. When oil and gas equipment is being appraised for insurance or resale process, equipment values are often calculated in this manner. 
• Useful life - The appraiser may estimate the useful life of the machinery by reviewing the age, physical condition, and depreciation of equipment. By consulting a chart showing the useful life of the particular object, and deducting time for age and wear and tear, an appraiser can calculate how many years of "useful life" a given piece of oil and gas equipment might have left. 
• Market approach - In a market-based approach to oil and gas equipment valuations, appraisers look at recent sales prices of comparable equipment. While this is considered a highly reliable way to value machinery, the method only works when equipment like that in question has been recently sold, is comparable in condition and value, and was sold in a similar manner and location. It would not be fair to compare the price of a frack tank sold at auction to one up for private sale, for example.  

Appraisers will typically employ one or more of these methods to determine the value for a piece of oilfield equipment. The appraisal report should list which method was used, explain the criteria under which the fair value was determined, and provide additional evidence used to support these conclusions. 

If you are considering buying a used rig engine, it is well worth the appraisal cost to know the equipment's fair value on the market. Taking the extra step of having an appraisal done can help you avoid spending money on equipment that is in bad shape and would be expensive to repair or confirm that a piece of used equipment is a good value, enticing you to bid on it. 

When it comes to something as specialized as oilfield equipment, it is important to find an appraiser who understands the oil and gas industry and can value the machinery accordingly. When your business assets and worth are on the line, never settle for a general appraiser who lacks industry experience. For help finding an experienced appraiser of oil and gas equipment in your area, look to Equipment Appraisal Services. 

When your company is undergoing a change in ownership, you may already be having enough to do just keeping things going. But have you considered how a metalworking equipment appraisal can help? Here are some situations where getting a metalworking equipment appraisal done ahead of a serious change can help make things go more smoothly and with much less drama:

Bankruptcy

In a bankruptcy, you may be forced to liquidate your assets to pay some of your creditors, At this point, a machinery valuation is often based on liquidation values, either through an orderly liquidation, forced liquidation or liquidation in place. Having a machine appraisal completed by a qualified, certified machine appraiser helps ensure that you can sell the least amount of equipment to settle your debts, helping keep your company more intact than may otherwise be possible.

Divorce or Partnership Dissolution

Though this type of situation can also lead to asset liquidation, it's much more likely to be finished amicably if both sides know that a fair and logical process of determining equipment values has been followed. In this type of situation, the party getting out of the partnership will often want the highest possible valuation while the other party will want the lowest valuation in order to pay the least amount to keep the business solvent. Having a certified machine valuation specialist develop a quality report based on standardized methodologies helps ensure that both parties get a fair equipment value.

Corporation Restructuring

When certain laws went out of effect a few years back that were keeping C corporation taxes low, many businesses have begun considering changing their corporate structure to a pass-through organization such as an S corporation. If company equipment values have been inflated in the past or not properly depreciated, they could carry inaccurately high capital gains through the conversion process. In businesses where this has happened, the amount of capital gains often completely wipes out any potential tax savings that the company would otherwise have realized during the through the restructuring process.

Business Sale, Purchase or Merger

How would you like to go to the negotiating table with a tool that helps guarantee that you'll get a fair price for the company you're selling, buying or merging? Equipment appraisals help provide legal documentation to back up your asking price, but only when they're completed by a certified equipment appraiser. Because metalworking companies often have a lot of capital tied up in machinery value, knowing the exact fair value of that equipment is a very strong bargaining chip when negotiating a business ownership transaction.

Settling an Estate

When a business owner passes on, there can be a million tiny and not-so-tiny details to attend to, especially if the owner died unexpectedly. Because estate taxes can take a large chunk out of a business legacy, knowing exactly what the equipment is worth makes a big difference in how large a bite the IRS takes. If the business owner wished for donations of equipment to be made, a certified appraisal report must be filed with the proper IRS form to ensure the donation can be tax deductible.

By having a metalworking equipment appraisal already in place, you can avoid some of the hassles and headaches these situations may create. If you haven't had a chance to have a quality machinery and equipment appraisal performed by a certified machine appraiser, why not take the opportunity to do so now? At Equipment Appraisal Services, our highly-qualified equipment appraisers are ready to help at any time. Please contact us today with any questions or to schedule an appointment with an equipment appraiser.

When equipment appraisers look at equipment during a machinery valuation, one of the characteristics they take into account is the estimated remaining useful life for that piece of machinery. Though the the process may look easy, a machine appraiser looks at several different factors when determining the remaining useful life when determining equipment values.

The Accountant's Way of Determining Remaining Effective Life

When it comes to equipment value, accountants tend to look at value in terms of depreciation. Tax systems are based around a uniform reduction in value, referred to as depreciation. An accountant's way using straight-line depreciation starts with the historical price at which the equipment was purchased, then takes away a certain amount of value every year for a set number of years. But just because a piece of machinery is fully depreciated doesn't mean that it no longer has any value or that it has reached the end of its effective lifespan.

Why Equipment Appraisals Provide a More Accurate Estimate of Remaining Useful Life

An equipment appraisal look at much more than just the age of the machinery when its determining the remaining effective life. It takes into consideration the condition of the equipment and whether it appears to have been abused or It whether necessary maintenance and repairs have been made, because if they haven't, that can cause additional wear and tear on other parts of the machine. It also considers the conditions the machinery is typically operated in. A piece of metalworking equipment will last much longer if it is kept in a climate-controlled workshop than if it's on a site where it's exposed to the elements near the corrosive saltwater ocean.

How Remaining Useful Life is Determined in Equipment Appraisal

There are common methods a machinery appraiser will use to calculate the remaining useful life in equipment.  The appraiser often will use published documentation that show the normal useful life range of types of equipment.  An appraiser may also talk to the manufacturer or companies that produce similar type assets to estimate the normal useful life.  The normal useful life of the equipment minus the effective of of the equipment equals the remaining useful life.

Determining remaining effective life in equipment valuation helps you estimate an expected time frame for machinery replacement in your business. A completely new appraisal can be performed if you've buy a business and you're concerned about how long you'll have before the machinery needs to be replaced or need to document this information for your financial institution.  It is also important to have an appraisal to set the books to start the depreciation schedule.

Though it's not an absolute guarantee of how long each piece of equipment will last, it does help you plan financially as a business owner for major equipment replacement costs down the road. If you need to have a machine appraisal performed to help determine your equipment's estimated remaining effective life, please contact us today. Our highly-qualified, certified valuation specialists are always happy to help.

When you're running a medical office, your equipment can be your biggest investment in terms of assets. But are you protecting those assets? If your business suffered a loss, would your insurance be sufficient to cover the cost of replacing that equipment Let's take a look at how having a medical equipment appraisal performed helps protect your business' bottom line.

Document the Original Equipment Values

A machinery and equipment appraisal provides more than just a dollar figure for your equipment, it documents the current value of your machinery. A machine appraiser provides legal documentation that holds up in legal, insurance and financial circles, provided that you're using a certified equipment appraiser to perform the equipment appraisals. It also gives you an idea of replacement cost and the expected remaining life of your machinery, making it much easier to plan for expensive replacements instead of being caught completely unaware when something breaks down.

Ensure You Have Sufficient Insurance

A medical equipment appraisal also helps you get a better idea of how well your assets are covered in case of a loss. If you're using the original purchase prices to determine the levels of your insurance coverage, you may be paying too much for your insurance because it's over insured. If, on the other hand, you're using depreciation values off your last tax return, you may be underestimating your machine's value in your insurance policy because the functional machine will still cost money to replace with a comparable machine. Knowing the value of your machinery through a report from qualified and certified equipment appraisers helps ensure you have the proper level of protection when it's needed most.

Provide Accurate Depreciation Equipment Value

Another area where a medical equipment appraisal can come in handy is to determine the appropriate level of depreciation when you're developing financial reports or need documentation for tax purposes. Because a machinery valuation provides legal documentation for your equipment's value, it can be used when machinery is depreciating faster, slower or at an uneven rate than the average straight line depreciation schedule. It also provides the equipment value beyond the point that it has been completely depreciated, documenting the existing asset value after depreciation is complete.

Gives You an Accurate Picture of Your Practice's Financial Standing

These areas all tie together in a machine appraisal that helps give you an accurate picture of where your firm really stands financially. Instead of making an investment that could be risky or having problems getting a loan because your equipment is fully depreciated, a medical equipment appraisal helps provide a solid picture of your financial state, allowing you to make much better business decisions that grow your practice instead of putting it at risk.

Have you had a medical equipment appraisal performed recently on your practice's equipment? If you haven't, maybe it's time to consider taking that step. At Equipment Appraisal Service, our highly-qualified, certified equipment appraisers are ready to help meet your appraisal needs. Please contact us with any questions, to get more information or to schedule your medical office equipment appraisal.

When you're considering having a machinery and equipment appraisal performed on your business equipment, you'll hear a lot of different terms used in regards to how equipment value is calculated. One of the more common terms you'll hear used is fair value. But what is fair value, how concrete is it in term of equipment values and in what situations is it used? Let's take a look.

What Is Fair Value?

Though it seems as though the value of machinery should be the same no matter your purpose, that's not always the case. In divorce proceedings where one person is buying out the other person's interest in a business, one party wants a low appraisal and the other a high one. In donation appraisals, both parties may want a higher appraisal than is warranted, so that one party can get a higher tax write-off and the other can claim higher donations to their cause. Fair value falls in the middle of these equipment appraisals.

Fair value is determined by using a solid methodology that is unbiased and is based on rational processes of determining the value. It looks at the costs of acquisition, replacement costs, utility, market demand, the risk involved and similar properties. Fair value is not always the same as market value, depending on conditions at the time. 

Is Fair Value a Final Value?

Fair value is determined using a consensus basis. A group of auditors will typically include the services of a machinery valuator, then the team takes into account many different factors and determines the best methodology and rationale to calculate value. After that, the calculated value is reviewed and either approved or rejected based on information uncovered during the review process, including whether the scope and objectives of the appraisal were appropriate choices, whether the machine appraiser had a truly unbiased view of the appraised equipment and if the machine appraisal as a whole was done using correct methods and formulas..

Because the reviewer will want to know the methodology used and whether the methodology fit in with the applicable standards, it's typically much better to use an accredited equipment appraiser to ensure that the proper processes were followed during the equipment valuation. In its most essential form, fair value is a more subjective value than the usual objective values determined by accountants using specific processes. 

In What Situations Is Fair Value Used?

There are a wide variety where fair value is used. Many financial reporting standards require or allow the use of fair value to report their company's assets and liabilities in a standardized fashion. It is typically much closer to the actual selling price of an asset than the asking price that a company wants to receive for selling that same asset. It is commonly used in accounting situations where a current value needs to be determined instead of basing the value on outdated historical prices or other accounting methods that may present an inaccurate financial picture of the business' assets.

Though many different calculations are inaccurately labeled fair value, now that you know the difference it will be much easier to arrange to have a machine appraiser provide the exact information you need to determine fair value. If you're still trying to find the right equipment appraiser for your company, please contact us. Our Machinery & Technical Specialties appraisers are accredited through the American Society of Appraisers and provide the best possible machine appraisal of your company's machinery assets.