Posts
9 years ago
Tuesday, September 7, 2010
ETS Criterion
ETS Criterion is ready to go. See our course website for sign-in instructions. When you login, look for our class, FIN 181 #71940 and the Blog Post 1 assignment.
Monday, September 6, 2010
Sunday, September 5, 2010
Salvage Value
Salvage Value: When reading those two words what are the first ideas that come to your mind in regards of the definition? Depreciation, throwing away an expired television or maybe a value your beat up old vehicle is worth? Those all being good thoughts, but the correct definition is “The estimated value that an asset will realize upon its sale at the end of its useful life.” (INVESTOPEDIA.COM) You are probably asking, how does one estimate the price of an asset that is at the end of its useful life? Or also thinking of the best use or economic value. Determining the value of an asset is very easy and may spark up memories of your Managerial Accounting class as we use accounting principles along with depreciation. With that being said lets first investigate how to determine Salvage Value of a building that has been determined to have a better use.
Let’s say you would like to determine the salvage value of the building you conduct business in as it ages and has an opportunity to become of better use. First we know that when you built the building in 1990, it cost you $500,000 and it's now the year 2010. Next we would need to know the salvage value; the salvage value of the building is estimated at $80,000. How we get the estimated salvage value is by looking into what the comparables are worth in the current market. This is also known as market value, the price that the building could be sold at as of today. Now the accounting principles come into place. We would like to determine how much the building has depreciated in the past 20 years. In doing so we can guarantee that this is a reliable estimate and that the building will actually sell for what it’s worth or make more sense to demolish and rebuild for the best use.
Many businesses use this method to determine the salvage value of an asset, especially in businesses that have machinery, delivery trucks, and other expensive highly depreciating assets. If you’re not familiar with the term salvage value businesses also refer salvage value to residual value or scrap value. For our example we are using a business building that one owns as a personal investment, but we could also say it’s his or her interest in the building is no longer there since it's not being used for the best use. The building owner would like to determine if demolishing the building is more profitable than building on as he or she decides to change the use of the building into an apartment complex.
In our example we are using a straight line basis. The formula looks like this: Asset cost in 1990 = $500,000 and the salvage value as of 2010 are estimated at $80,000. Taking the cost of your asset in 1990, which was $500,000 and subtracting the salvage value $80,000 we get the amount below:
$500,000 - $80,000 = $420,000
Now take the years that have expired, which are 20 years and divide $420,000 by 20:
$420,000 ÷ 20 = $21,000
The $21,000 is your yearly depreciation, which goes to show you that buildings can depreciate at a large amount or what's around the building can cut the life of that building short. In this case we will say that more apartment complexes are being built instead of what it once was, commercial usage.
You can determine any asset’s salvage value by using this formula if you would like to estimate the value before you decide to sell the asset or do whatever you please to do with it. Say you determine the value to be so little that you demolish the asset, in our case the building. In order to gain some kind of profit and it to make sense you would want to determine this Salvage Value so you can have a clear picture on what your return might be. The owner of this building decides to demolish the building and actually receives more than the $80,000 that he or she would have got if they were to sell the building. Many companies saw the opportunity to use the reusable materials for their own construction use. Therefore in this case it was very valuable to determine the Salvage Value.
In the key words section of our text Salvage Value is present, but the text shows no interest in saying what it means. That made me curious as to what the text means when they use the term Salvage Value as one of the keys terms. Does it relate to trade fixtures which are assets or to much more? It’s much more than just trade fixtures. Like our example shows it can be materials recycled after a demolition and so much more. Salvage Value assets are mostly used for major divisions of your business. In the Real Estate field our Salvage Value assets will range from computers to vehicles and the best use of an asset, such as a building. I have learned that this is almost an exact estimation of what your asset is worth, especially since the market can back up the value estimated.
Rattermann, M. R. (2009). The Student Handbook to The Appraisal of Real Estate. Chicago, IL: Appraisal Institute.
INVESTOPEDIA.COM (2010). Salvage Value Definition. Retrieved from http://www.investopedia.com/terms/s/salvagevalue.asp
Let’s say you would like to determine the salvage value of the building you conduct business in as it ages and has an opportunity to become of better use. First we know that when you built the building in 1990, it cost you $500,000 and it's now the year 2010. Next we would need to know the salvage value; the salvage value of the building is estimated at $80,000. How we get the estimated salvage value is by looking into what the comparables are worth in the current market. This is also known as market value, the price that the building could be sold at as of today. Now the accounting principles come into place. We would like to determine how much the building has depreciated in the past 20 years. In doing so we can guarantee that this is a reliable estimate and that the building will actually sell for what it’s worth or make more sense to demolish and rebuild for the best use.
Many businesses use this method to determine the salvage value of an asset, especially in businesses that have machinery, delivery trucks, and other expensive highly depreciating assets. If you’re not familiar with the term salvage value businesses also refer salvage value to residual value or scrap value. For our example we are using a business building that one owns as a personal investment, but we could also say it’s his or her interest in the building is no longer there since it's not being used for the best use. The building owner would like to determine if demolishing the building is more profitable than building on as he or she decides to change the use of the building into an apartment complex.
In our example we are using a straight line basis. The formula looks like this: Asset cost in 1990 = $500,000 and the salvage value as of 2010 are estimated at $80,000. Taking the cost of your asset in 1990, which was $500,000 and subtracting the salvage value $80,000 we get the amount below:
$500,000 - $80,000 = $420,000
Now take the years that have expired, which are 20 years and divide $420,000 by 20:
$420,000 ÷ 20 = $21,000
The $21,000 is your yearly depreciation, which goes to show you that buildings can depreciate at a large amount or what's around the building can cut the life of that building short. In this case we will say that more apartment complexes are being built instead of what it once was, commercial usage.
You can determine any asset’s salvage value by using this formula if you would like to estimate the value before you decide to sell the asset or do whatever you please to do with it. Say you determine the value to be so little that you demolish the asset, in our case the building. In order to gain some kind of profit and it to make sense you would want to determine this Salvage Value so you can have a clear picture on what your return might be. The owner of this building decides to demolish the building and actually receives more than the $80,000 that he or she would have got if they were to sell the building. Many companies saw the opportunity to use the reusable materials for their own construction use. Therefore in this case it was very valuable to determine the Salvage Value.
In the key words section of our text Salvage Value is present, but the text shows no interest in saying what it means. That made me curious as to what the text means when they use the term Salvage Value as one of the keys terms. Does it relate to trade fixtures which are assets or to much more? It’s much more than just trade fixtures. Like our example shows it can be materials recycled after a demolition and so much more. Salvage Value assets are mostly used for major divisions of your business. In the Real Estate field our Salvage Value assets will range from computers to vehicles and the best use of an asset, such as a building. I have learned that this is almost an exact estimation of what your asset is worth, especially since the market can back up the value estimated.
Rattermann, M. R. (2009). The Student Handbook to The Appraisal of Real Estate. Chicago, IL: Appraisal Institute.
INVESTOPEDIA.COM (2010). Salvage Value Definition. Retrieved from http://www.investopedia.com/terms/s/salvagevalue.asp
Thursday, September 2, 2010
Blog Post 1: Appraisal Keyword
To get started with a blog post, please make a post and indicate the appraisal term that you have selected for your first blog post.
Tuesday, August 31, 2010
Today's On-line Class
We will meet on-line today at https://my.dimdim.com/gazarian. You can register on-line now and logon at 3:20 PM.
Tuesday, August 24, 2010
Monday, December 21, 2009
Final grades posted to Blackboard
Please note that final course grades, final exam grades, and quiz grades (the simple average of your top four of six quizzes) have been posted to Blackboard.
Thank you and have a wonderful holiday!
Thank you and have a wonderful holiday!
Sunday, December 13, 2009
Quiz 5 and 6
Quizzes 5 and 6 have been posted to BlackBoard. Please see the post below for information on the final exam.
Monday, December 7, 2009
Final Exam Reminder
The final exam is on Thursday, December 17th from 5:45 to 7:45 PM. The final exam will cover chapters 17 through 26. The format will be a combination of multiple choice, short answer, and calculation problems.
Sunday, November 15, 2009
Tuesday, November 3, 2009
BlackBoard Updated
Exam 2 scores have been updated on BlackBoard. Also, please ignore any "points" information on BlackBoard. You final course grade is calculated according to the formula in the syllabus. I just use BlackBoard to report your percentage grades.
Online Assignment for Thursday, November 5th
The following is an online assignment for Thursday, November 5th. I will be in San Francisco attending the Urban Land Institute/UrbanPlan annual meetings and we will not meet formally for class. In lieu of class, please complete the following on-line assignments (the links below are found on our class website).
Assignment 1: Please complete the cost approach problems from the "Other Materials for Appraisal" pdf.
Other Materials for Appraisal (.pdf)
After trying the problems, please proceed to the clip below for the solutions.
Video/Audio Clip for Appraisal Crossword Puzzle and Other Materials for Appraisal (1 hour, 27 minutes)
Cost Approach Problems Solutions (.pdf)
Assignment 2: Please complete the case study below. Bring your solution to next class, we will go over the solution together.
Video/Audio Clip for the Case of the Botched Appraisal Instructions (15 minutes)
Case of the Botched Appraisal Instructions
Original Appraisal
Worksheet
Optional assignment: View the review clips posted for the final exam coving the cost approach, income approach, and final reconciliation.
Cost Approach Video/Audio Clip (38 min)
After trying the problems, please proceed to the clip below for the solutions.
Video/Audio Clip for Appraisal Crossword Puzzle and Other Materials for Appraisal (1 hour, 27 minutes)
Cost Approach Problems Solutions (.pdf)
Assignment 2: Please complete the case study below. Bring your solution to next class, we will go over the solution together.
Video/Audio Clip for the Case of the Botched Appraisal Instructions (15 minutes)
Case of the Botched Appraisal Instructions
Original Appraisal
Worksheet
Optional assignment: View the review clips posted for the final exam coving the cost approach, income approach, and final reconciliation.
Cost Approach Video/Audio Clip (38 min)
Income Approach Part 1 Audio/Video Clip (wmv file right click and save to desktop to download)
Income Approach Part 2 Audio/Video Clip (wmv file right click and save to desktop to download)
Income Approach Part 3 Audio/Video Clip (wmv file right click and save to desktop to download)
Income Approach Part 4 Audio/Video Clip (wmv file right click and save to desktop to download)
Income Approach Part 5 Audio/Video Clip (wmv file right click and save to desktop to download)
Friday, October 30, 2009
Exam 2 Results
Exam 2 scores and exam descriptive statistics have been posted to BlackBoard. We will review Exam 2 during the first 10-minutes of Tuesday's class.
Wednesday, October 28, 2009
Chapter 16 Notes Posted
The link to the Chapter 16 class notes has been fixed. Don't forget, Chapter 16 is on Exam 2.
Tuesday, October 27, 2009
Exam 2 Reminder
Exam 2 is this Thursday and will cover chapters 9, 12, 13, 14, 15, and 16. Please note that Chapter 16 was left off the syllabus under the Exam 2 material. The format will be primarily multiple-choice.
Just a heads up, the final exam will be primarily short-answer and calculation problems with some multiple-choice. (I like to mix it up a bit.)
Just a heads up, the final exam will be primarily short-answer and calculation problems with some multiple-choice. (I like to mix it up a bit.)
Thursday, October 22, 2009
Exam 2 Review Audio/Video Clips Posted to Class Website
I have posted 3.5-hours of audio/video clips to help you with the exam 2 material: market analysis, highest & best use, sales comparison approach, and site valuation. Links to these audio/video clips have been posted on our class website.
Wednesday, October 21, 2009
Wednesday, October 14, 2009
Thursday, October 1, 2009
Notes Posted on FIN 181 Website
If you visit the class website (click here), you will now find the class notes posted. Please download these PowerPoint (ppt) files and print them out. Please save paper and print 2 or 3 to a page (see me if you have any trouble with the printing options).
Please note that I will bring today's notes on Chapter 9 Market Analysis to class for you.
Please note that I will bring today's notes on Chapter 9 Market Analysis to class for you.
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