Machinery and Equipment
Used in Conjunction with a Going Concern Business
ALLEN D. BEALMEAR
Normally in business valuations, machinery and equipment is appraised based on the concept of fair market value in continued use. This concept can be derived from employing various methods and procedures within the three basic approaches to value known as the cost approach, market comparison approach, and income approach.
Within the cost approach, the most commonly used method for valuing equipment is a discounted replacement cost analysis. This method is the least supportable when considering the valuation of machinery and equipment, but may be the most appropriate for use in conjunction with a business valuation. The sales comparison method within the market comparison approach is more supportable than the depreciated cost methods, but requires additional adjustments for value in use. The income approach is rarely used, but when appropriate is supportable.
Generally speaking, a business or a company has an assortment of machinery and equipment, possibly ranging from production and manufacturing equipment, and even including office furniture and equipment, fixtures, tooling, and so on. In aggregate, the total value of the machinery and equipment (personal property) constitutes a g;ood portion of the total value of a business.
This chapter does not address real estate. There is a definitive difference between what is considered machinery and equipment and what is considered real estate. Much of what many people consider real estate may be mechanical equipment such as boilers or bridge