When you're buying a business or a large lot of equipment, it can be difficult to determine how to allocate value across the assets. How do you determine how much of the value you've paid for the equipment should go to each piece of machinery? One of the easiest ways to make this work is through an equipment appraisal for asset allocation, which uses the values from the appraisal report created by a certified equipment appraiser to determine the overall value and how it should be spread across a number of different pieces of machinery.
How to use an equipment appraisal for asset allocation
Let's take a look at a possible scenario that is fairly common when a large lot of mixed equipment is purchased. A business needs to expand quickly and so buys out a bunch of equipment from a competitor. Though the equipment is worth a particular amount as a lot, it's hard to determine the value of each type of equipment, never mind each piece. How do you divide the cost of all the equipment up among the different pieces of machinery in a fair, equitable fashion?
One of the easiest ways to determine how to allocate asset value is by having an equipment appraisal performed. When an overall valuation is performed, the valuation specialist looks at all the equipment you've purchased, which allows them to pick out differences between not only different types of machinery, but also individual pieces of equipment within that model. They can tell you when a particular piece of machinery has a lower value because it has damage or excessive wear. They're able to mention when a particular part of a lot has a higher value because it has an optional feature that wasn't included in the other machinery.
Once the appraiser has had the opportunity to review and examine all the machinery, they can create an overall report that sums up the total value as well as the individual value of each piece of machinery. A certified equipment appraiser used a series of standardized methodologies to calculate the exact value of the machinery. The certification process ensures that a certified appraiser has the knowledge, experience and expertise to determine the machinery's value accurately.
An equipment appraiser deals with nothing but machinery all day, allowing them to see how one piece of machinery compares to another. This gives them a unique insight to see every possible item that may affect its value, whether it's a stain from liquid that indicates a leak or drip, a bit of metal scraped free of paint that indicates a pulley out of alignment or a slightly different sheen to the paint that indicates repaired damage. Any of these signs can show you where any number of issues can come into play in the future use of your equipment, allowing you to make repairs as needed.
The process of allocating assets in your business can seem like a complicated process, but using an equipment appraisal for asset allocation provides you with a fair value for your equipment, making the process go much more easily. It also provides you with a background value for your machinery, providing you with a solid proof of value should you suffer any losses for your insurance company or need to prove the value of the machinery for legal, financial or tax purposes.