Equipment Appraisal Blog | Understanding Machinery Appraisals

How Incorrect Depreciation of Equipment can Affect Your Bottom Line

Posted by Equipment Appraisal Services on Tue, Apr 05, 2016 @ 10:30 PM

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As tax season is in full swing, there are two ways to handle depreciation of equipment: the easy, risky way or the harder, smart way. Though it's easy to use the government's standard depreciation tables and schedules to depreciate your equipment values over the years, you may actually be creating a situation where you're opening your business up to risk or leaving money on the table when looking at potential opportunities. Depreciation is legal documentation of your business assets and should be accorded the same regard as your deed to your location or your business licenses. Here's why using machine appraisal to get a proper figure for depreciation of equipment can make a huge difference to your company:

How miscalculating depreciation of equipment affects your company's potential

Situations where value remains higher than the standard depreciated value

In some situations, an equipment appraiser may assign a higher value than a standardized depreciation table. If you use a depreciation table in these circumstances, you're stating a lower value than the machine may actually be worth. This is a problem in a few areas. A tax agency may claim that you are intentionally claiming a lower value to avoid taxes, especially if you use the equipment for an extended period of time after it has been fully depreciated per the standardized table. You can't leverage your assets fully to take advantage of opportunities that may come your way because your financial institution doesn't know you have more value in your machinery than stated. Not having an accurate machinery valuation may cause problems with getting cash from your insurance company to purchase comparable equipment in a loss because the tax record and depreciation is the only proof of value you have.

  • Is your equipment seeing easy use? If it isn't getting normal wear and tear, it might have a higher value than an average piece of equipment of that type and quality because it will be expected to last longer.
  • Did you invest in quality equipment that is still expected to be in service and retain value beyond the end date of the standard depreciation table for that type of equipment? If so, it might lose value at a slower rate and will still have value long after it has been completely depreciated.

Situations where value may be lower than the standard depreciated value

But there are also situations where your value may be below the standardized depreciation tables. In these instances, you may be overstating the value of the equipment, leaving your business open to risk and higher taxes. Paying taxes on assets that are shown as having a higher value creates a false high value, raising your business taxes. At the same time, using these figures to secure financing may open your business to additional risk when an opportunity doesn't pan out and the machinery won't sell for its depreciated rate.

  • Does your equipment tend to see heavy or abusive use? If it does, it might have a lower value than an average piece of equipment of that type and quality due to a shorter expected lifespan.
  • Is it of average or bargain quality? It may not last the full length of the depreciation table, forcing you to pay higher taxes on it until it fails.
  • Have there been issues with irregular maintenance or uncompleted repairs? These can lead to a shorter lifespan, causing it to be removed from service before it's completely depreciated.

If you need to have equipment appraisals performed to get a corrected depreciation value, Equipment Appraisal Services can help. Our certified, highly-trained equipment appraisers are ready to find the right value for your machinery.

Tags: Asset Depreciation, machinery & equipment appraisal

What exactly is involved in fixed asset appraisals?

Posted by Equipment Appraisal Services on Tue, Nov 17, 2015 @ 11:00 AM

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When you're looking at machinery and equipment appraisal, the different approaches taken to determine machinery valuation can seem mind boggling at times. Your equipment appraiser will know best which type of appraisal fits your situation and your business' needs, but knowing a bit about common appraisal practices helps you better understand your equipment value and how it affects your business' bottom line. Let's take a look at what this type of appraisal can do for your business:

What are fixed asset appraisals?

Accounting practices such as depreciation will often lower the value of a piece of equipment on the books to zero long before the machinery ceases to provide value for the business. A fixed asset appraisal looks at the actual value of the machinery. Transactions that involve selling, buying or merging a business often require that equipment appraisals be performed that will provide an accurate picture of the business' financial condition. A business expansion that requires collateral for financing arrangements will often use a fixed asset appraisal to provide the same type of clarity. Having documentation of an asset's value from a qualified machine appraiser is often vital to insurance claims, especially if you'd rather get the claim done and get your business back into action instead of fighting with the insurance company over the value of equipment that has been lost. 

Make sure the equipment appraiser you use is from a firm that is an Accredited Member of the American Society of Appraisers with a designation in Machine & Technical Specialties to best protect your bottom line. Contact us today to speak with our highly qualified equipment appraisers and get a clear picture of where your business' finances stand.

Tags: machinery & equipment appraisal, fixed asset appraisal

Why a Machinery & Equipment Appraisal after a Purchase is Necessary

Posted by Equipment Appraisal Services on Thu, Nov 05, 2015 @ 03:00 PM

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If you have just purchased a large piece of equipment, then you may wonder why you would need to have a machinery valuation done. After all, wouldn't the equipment be worth the price you just paid for it? Not necessarily. Learn the benefits of having a machinery & equipment appraisal performed after a big purchase to ensure you make the most of your new asset. 

Why Have Equipment Appraisals After a Purchase? 

Top reasons to have a piece of equipment valued after a purchase include:

  • Reset fair market value - The business that sold the equipment to you probably did so at the point at which the piece of machinery had no book value to them. Perhaps they got a new excavator when their old one had fully depreciated on their books. Yet, you know that an asset like a used excavator still has a lot of life left in it. With an appraisal, you can reset the fair market value so that you can claim depreciation on the item. For your tax purposes, establishing equipment values is the first step toward being able to depreciate the item.
  • Insure the item - When it comes to something as large as an excavator, a machine appraisal is critical to protecting the item through insurance. If something were to happen to the excavator, would you have enough money to repair or replace it without affecting your profit and loss? If not, then you need the protection that insurance offers. An equipment appraiser can set the fair market value of an item so the insurer will cover it at its worth. 
  • Determine replacement cost - Ideally, your excavator will perform well for many years to come. Yet a smart business owner always covers themselves in case "the worst" does happen. By getting an equipment value from a machine appraiser, you can establish the cost to repair or replace equipment pieces as well as the whole machine. This allows you to make informed decisions about equipment repair and determine when the machine costs more to repair than it would to replace, saving the business money. 
  • Boost business value - It may seem strange that a machine appraisal can positively impact business value, but it is true. When you have all equipment appraised, including new-to-you used machinery, your business can have an overall higher value. This occurs in part because appraised value is higher than depreciated value. 

If you have purchased a large piece of equipment, or if you are planning on doing so in the near future, identify equipment appraisers who have expertise in your specific niche. This way, you can have them appraise the equipment so you can take the necessary steps to protect yourself once you move the new asset into business usage. 

When moving through the process of machinery appraisal, it is necessary that you work with an equipment appraiser who really understands what you do and how to value the piece of equipment that you use. This way, you end up with a fair market value for your large item that is accurate and fair. An inexperienced appraiser could guess at the value and accidentally lead you astray. 

If you would like to learn more about the equipment appraisal process for used machinery, or if you want to talk to an industry expert about valuing a piece of machinery, please contact us at Equipment Appraisal Services.

Tags: equipment appraisals, machinery & equipment appraisal