Equipment Appraisal Blog | Understanding Machinery Appraisals

Exactly how do you determine normal useful life in your equipment?

Posted by Equipment Appraisal Services on Tue, Oct 17, 2017 @ 12:24 PM

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When you own equipment, do you know about how long you can expect to be able to use it? Though most owners know roughly how long their equipment will last, determining a closer estimate is a difficult process. Fortunately, it's a process that is familiar to many experienced and certified equipment appraisers. Here's a quick look at the factors they consider when determining normal useful life in a piece of equipment.

Exactly how do you determine normal useful life in your equipment?

 

There are a wide range of factors that contribute to the lifespan of a piece of equipment. Here are just a few that are taken into account by a certified equipment appraiser during the process of calculating useful life.

  • Environmental conditions. There can be a huge difference in the lifespan of a piece of equipment based solely on the conditions where it is stored and used. Equipment kept in a dusty warehouse with extremes of temperature and a leaking roof will almost certainly have a much shorter lifespan than one kept in a clean, dry workshop with climate controlled temperatures. Why? Moisture and humidity can lead to corrosion, while being used in hot, dusty conditions will lead to early breakdown of lubricants and cause excessive wear. Better conditions lead to a longer useful lifespan.
  •  Suitability to the work. If the equipment you're using is underpowered for the work, it will be used at the high end of its range for most of its lifespan. That means it will overheat more often, breaking down lubricants and causing excessive wear on the components. This in turn leads to other parts failing and a shorter overall lifespan than may be expected of a piece of machinery better suited to the work at hand.
  • Abusive usage. Is the equipment being used with care to preserve its condition? If it's being used incautiously or being beaten on to work controls, this level of abuse will quickly shorten its overall useful lifespan. As an example, we've all seen heavy equipment that has been bashed, dented and torqued early on in its lifespan, which quickly leads to early failure.
  • Expected longevity of that line of machinery. Some brands have a reputation for excellence and longevity that comes into play. For example, a store brand bandsaw with a reputation for poor performance and shoddy manufacturing won't hold up nearly as long as a finely-crafted one that has been well engineered, created from the best materials and delivers superior performance time and again. When the second example is used, you can expect a much longer useful lifespan than you may otherwise anticipate.
  • Regular maintenance and repairs. Though it seems like a simple step, regular maintenance in line with the manufacturer's recommendations can help ensure a much longer lifespan than equipment that has been neglected over the years. In the same vein, repairs that are caught early and dealt with quickly will help prevent damage to other components in the system.

Though the process of determining normal useful life in a piece of machinery is difficult, it's one that equipment appraisers are well versed in handling. By knowing when your equipment may fail, you can better plan for replacement and ensure you are still able to receive some resale value out of it. A certified equipment appraiser can help you determine this timeline for your machinery.

Tags: normal useful life, remaining useful life, fair market value

Understanding Effective Age and How it Affects Machinery Values

Posted by Equipment Appraisal Services on Tue, Mar 28, 2017 @ 12:28 AM

There are so many terms in the equipment appraisals process that you would need a dictionary to understand them all. As long as you know the key terms that could affect your machinery valuation, you can interpret the results of an equipment appraisal and buy or sell used equipment for a fair price. When it comes to buying and selling used equipment, one key term to understand is effective age

Understanding Effective Age 

Appearances can be deceiving. If you were buying a die-cut machine at auction, for example, you would want to know whether the machine was 2 years old or 20 years old. The age would affect the price you were willing to pay for the machinery. You might be prepared to purchase a die-cut sealer that was either 2 or 20 years old, but for a very different price tag. Likewise, if you were selling the machine you would have a different expectation of acceptable prices based on age. 

What if the die-cut sealer was actually 20 years old, but looked so good you would have sworn it was last year's model? This is where understanding effective age in the appraisal process comes into play. 

Every piece of equipment has a real age representing the time from the date of manufacture to the present. Effective age denotes the look and feel of the machine... in other words, how old it appears to be to observers. 

Whether you are buying or selling, effective age is important to know. It tells you something about the equipment values set at auction.

Effective age is subjective. Depending on how the machinery was cared for, the effective age can be less than or greater than the actual age. 

A machine that looks new but is years old could have been recently repaired and painted to appear close-to-new. When examining old equipment, consider whether the piece was cosmetically enhanced to look good or truly rehabilitated to be competitive with current models. 

Consider the example of a home for sale in your neighborhood that's 30 years old. Let's say the current owner remodeled the bathrooms with low-flow toilets and an energy-efficient shower, put in a new tile floor, and refreshed the paint. The updated bathroom looks brand new even though the home is 30 years old. Now, imagine the same home is on the market, but the bathroom has only been repainted and the sink faucet was replaced. The bathroom looks somewhat newer than the rest of the house, but isn't actually more efficient. The work was simply window dressing to trick the buyer into paying a good price. 

The same holds true for machinery valuation of used equipment. Rather than trust what you see, it's important to dig deeper and ask questions to find out if the equipment meets your needs and if the price is fair. 

An equipment appraiser can help you evaluate equipment you are considering buying from a third party or walk you through the equipment values and effective age of an item before you take it to auction. This can save you time and money if you're selling equipment. Why spend money to fix an item if its effective age will still look poor compared with similar pieces of equipment? 

 Whether you seek equipment appraisals before buying or selling, it's key to find an appraiser who understands the industry, equipment, and core considerations.

Tags: normal useful life, effective age, remaining useful life

Understanding Remaining Useful Life of a Machine

Posted by Equipment Appraisal Services on Tue, Mar 21, 2017 @ 02:10 PM

If you're reading through a machinery valuation before bidding on a piece of used equipment at auction, you'll run across the concept of remaining useful life. By understanding remaining useful life, you can understand how much the equipment values are and purchase with confidence. Learn more. 

What is Remaining Useful Life in Equipment Appraisals?

Remaining useful life, sometimes abbreviated as RUL, refers to the amount of time in years a piece of equipment has before it will need replacement. 

To gauge the remaining useful life of an item, the appraiser will review service records, thoroughly inspect the equipment, and check out the environment where the equipment is used. A forklift that's kept in a salvage yard will age much faster than one that's always stored in a garage overnight, for example. Even if two forklifts were purchased at the same time, their remaining useful lives can widely differ. 

An equipment appraiser will consult guides that indicate equipment values over time, as well as the normal useful life of the unit, which is the typical life span of the unit. He or she may reach out to the manufacturer with questions that can help define a value if any questions arise. 

By subtracting the estimated period of use from the normal useful life, the equipment appraiser can deliver an estimate for the remaining useful life. For example, say that a canner has a normal useful life of 25 years, and the appraiser determines the equipment appears to have been used for 10 years. The canner may be older or younger than 10 years; what matters less is the physical age than the amount of use the equipment shows. The appraiser would then subtract the use from the normal useful life to arrive at an RUL of 15 years. 

How Understanding Remaining Useful Life Benefits You 

If you are interested in a piece of equipment such as a canning machine, used equipment auctions can be a great way to purchase the equipment you need at a price you can afford. Yet if you don't understand the useful life, you risk paying more than you should for an old canner that won't truly last. 

If you are the other party in the auction -- the owner of the canning machine who wants to sell it -- you also must understand the concept of useful life. By getting the equipment values taken ahead of time, you can gauge the fair market value of your item and decide your next steps. You might opt to have the old canner serviced, if a servicing can help you command a better price at auction. Or you might decide against servicing equipment, saving yourself money.  

Whether you want to buy or sell a machine, remaining useful life is an important concept to understand. A skilled equipment appraiser will know how to accurately determine the RUL and can explain it to you so you understand the estimate and can make the right decision for your business interests. While the RUL is always an estimate, not a guarantee, it's helpful to have a baseline estimate for a machine's lifespan. 

Once you know the remaining useful life of a piece of equipment you've just purchased, you can plan ahead for when the item might need to be replaced. This helps you budget accordingly for the replacement and avoid the unpleasant shock that comes with suddenly losing a piece of equipment you rely on every day. 

Tags: normal useful life, remaining useful life

Effective Age of an Asset in Machinery Valuation

Posted by Equipment Appraisal Services on Tue, Jan 05, 2016 @ 09:30 AM

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What are your company's equipment values? Though you could guess, a machinery and equipment appraisal can give you a better idea of the value of your company's machinery. But beyond making a quick guess based on what you've seen sell lately or where it is compared to new models of older machinery, the only way to make sure by having a quality machine appraisal performed, during which time the effective age of the machinery will come strongly into play. Let's take a look at what equipment appraisers concentrate on when determining equipment value.

Effective Age of an Asset in Machinery Valuation

Though you can try to determine the value of a piece of machinery, there are a few techniques that don't really work well. Using standardized depreciation formats instead of considering the long-term viability of the equipment means you may have completely depreciated the assets you are still using on a regular basis, which provides an inaccurate view of your business' financial outlook. At the same time, basing the value on local sale prices or dealership offerings may also wreak havoc on your financial outlook, as other machines being offered for sale may be of higher or lower quality and maintenance than the machinery you own and need to appraise.

When an equipment appraiser looks at your business' equipment, he or she is not just looking at the age, manufacturer and model. Because machinery can be kept in a wide range of conditions and levels of maintenance and repair, a much closer approach must be undertaken to determine what the effective age of a machine is as well as the expected remaining useful life from that machinery. But what kind of details are considered during equipment appraisals? Let's continue on for a look.

How Machinery Valuation Specialists Determine Effective Life

So how do machinery appraisers determine the effective useful life of your equipment? They take a good look at the machinery, to see whether it has had excessive wear and tear or other signs of abuse, such as dents, welded repairs or similar concerns. Other areas they'll consider is the working environment and how well the machine has been protected from the elements. They'll take a look at your maintenance and repair logs to ensure that the equipment has received proper care or whether there are outstanding issues that could lead to further problems down the road. They'll consider the hours meter and whether the degree of wear matches up to what they'd expect from machinery with that amount of use. Beyond the machines you own and hare having appraised, they'll also take into consideration similar machines they've appraised in the area and how long they tend to last, basing your machine's potential effective life on all these factors.

By knowing your company's equipment appraisals are accurate and based on solid methodology, you're able to make better decisions in the future that will benefit your company, such as determining when to plan for expected machinery changes as older assets reach end of life. By having a quality, certified machine appraiser take a good look at your machinery and determining its effective age and potential future lifespan, you have legal documentation of the condition of your machinery for financial or insurance purposes if needed. If you have any further questions on how effective life is determined or want to schedule an equipment appraisal, please contact us today. Our highly-trained, certified staff are always happy to help with your equipment appraisal needs.

Tags: Asset Depreciation, normal useful life, effective age, remaining useful life

How Remaining Useful Life Is Determined by Appraisers

Posted by Equipment Appraisal Services on Tue, Dec 15, 2015 @ 01:30 PM

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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.

Tags: normal useful life, appraisal depreciation, remaining useful life

What is the Normal Useful Life of an Asset?

Posted by Equipment Appraisal Services on Mon, Oct 19, 2015 @ 03:00 PM

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If you are selling your business, financing or refinancing, or auctioning old equipment, you may need the services of a machinery appraiser to determine the value of your business assets. During an equipment appraisal, a skilled appraiser will use a variety of factors to determine fair equipment values. One factor typically considered is the asset's normal useful life. Learn what it means to get the most insight into your machine appraisal and business valuation

What is Normal Useful Life?

The useful life concept originates in accounting, where accountants used a formula to determine the relative useful life of an asset for business and tax purposes. Appraisers have developed their own handbook by category. This gives appraisers a common ground to use when evaluating enterprise assets. 

The normal useful life refers to the physical life (in terms of years) that a piece of equipment will be used before it is retired from business. The normal useful life is typically a conservative measure that accounts for the useful life of the item before you might elect to retire it from business. 

A useful life of a tablet might be 24 months. Even though the tablet still works after 24 months, a reasonable business owner might elect to upgrade to a new tablet and use the old one at home, or the owner may decide to upgrade after 6 months and sell the tablet to another business. 

To calculate an object's useful life, an appraiser looks at similar items and calculates how long those items would reasonably be used in business. Taking into account the ways the piece of equipment being appraised differs from these comparable items, the appraiser then determines a reasonable lifespan. 

Appraisers can utilize the useful life concept to determine the remaining useful life of an asset already put into use by the business. For example, the business may have a large-format printing press that is three years old. An appraiser might determine that such an item has a useful life of seven years. Thus, the business would be expected to use the item for four years and then retire it. 

This concept helps businesses determine an asking price for an item they wish to sell or auction so they can receive a fair price that reflects the item's market value. 

The useful life concept is also helpful when it comes to proving the value of leased equipment. A farmer who is leasing a tractor would want to have peace of mind that the tractor was worth more than the sum of the twelve-month lease agreement, or they might want to lease a newer tractor that offered a better deal. 

Appraisers use a number of factors to determine the value of an asset so that buyers and sellers have a fair place to begin negotiations. The useful life concept is just one factor that can help determine an asset's value on the market. An appraiser will also take an item's uniqueness and historical significance into account, since these variables can effect value. Before setting an asset's estimated value, an appraiser will also research how much similar items have sold for, so market fluctuations may play a role in machinery valuation.

 

Tags: Asset Depreciation, normal useful life