For assessment purposes, methods for determining the amount of physical wear and tear are usually divided into direct and indirect.
Indirect methods determinations of physical wear and tear are based on inspection of objects and study of their operating conditions, data on repairs and financial investments to maintain them in working condition. The following indirect methods for determining the physical wear and tear of machinery and equipment can be distinguished:
- effective age method (lifespan method);
- expert analysis of physical condition;
- method of correlation models;
- performance loss method;
- loss of profitability method.
The machinery and equipment of most Russian enterprises are very worn out. A significant part of them, according to accounting data, is 100% worn out, but is actively used and, therefore, has a market value. The other part, on the contrary, having virtually no accounting wear and tear, has virtually zero value due to functional, moral and (or) economic obsolescence. When there are a large number of units of machinery and equipment at enterprises (from several thousand in medium-sized enterprises to tens of thousands in large enterprises), questions often arise of determining the cost of both individual units and groups of equipment (which is much more common), as well as the entire fleet of machinery and equipment in in general. What is important is not only the question of the value of the value on a specific date, but also the forecast of changes in value over time, as well as changes in value after significant dates (for example, after a default, etc.). In this case, the owner or manager, as a rule, has an intuitive idea of the value of individual groups or all funds as a whole.
The appraiser’s task, even at the stage of pre-project assessment work, is to understand how much the customer’s intuitive ideas coincide with reality. As a result of further assessment work, detailed calculations should confirm the appraiser's conclusions obtained from the express analysis. One of the main obstacles on the path of the appraiser, as a rule, is the inability to obtain a complete list of source data (there are more than 50 items) and the lack of unambiguous identification of the object of assessment.
Identification- this is the identification of technical characteristics and properties of objects and their assignment to a certain class (group) of fixed assets. This information subsequently serves as the initial data for calculating the cost of objects. Considering the large variety and number of pieces of equipment even within one medium-sized enterprise, it is obvious that this task has become one of the most critical and time-consuming in the assessment process.
Table 3.1.
List of input data used in various equipment evaluation methods
- Homogeneous object (analog)- The manufacturer’s own costs for assembling the object from parts
- Price of a homogeneous object (analogue)- Groups of complexity of the assessed objects or its components
- Mass of a homogeneous object (analogue)- Number of nodes in the evaluated object
- Profitability of a homogeneous object (analogue)- Specific costs for the manufacture and acquisition of components per one “input-output”
- Volume of a homogeneous object (analogue)- Specific salary per technological unit
- Area of a homogeneous object (analogue)- Indirect overhead costs (% of basic salary)
- Power of a homogeneous object (analog)- Unit costs for components (% of the cost of materials)
- Productivity of a homogeneous object (analog)- Time (month, year) of the fixed original price
- Initial price of the assessed object- Trademark price
- Basic price of the valued object- Cost of additional devices
- Mass of the assessed object- Data for determining annual revenue
- Profitability of the assessed object- Data to determine annual costs
- Volume of the assessed object- Building cost data
- Area of the assessed object- Data on the cost of structures
- Power of the evaluated object- Land value data
- Performance of the object being assessed- Real discount rate
- Composition of the structure of the object being assessed (devices, blocks, units, etc.)- Capitalization rate for land
- Prices of all parts included in the design of the object being assessed- Standard service life of the object
- Indices for reducing the initial value to the base value- Actual service life of the object
- Indices for reducing prices from the base year to the level at the valuation date- Book value of the machine complex
- Unified industry-wide standards for unit costs for materials, components, wages of key workers, indirect costs per unit of measurement of the influencing factor - Book value of individual units of equipment
- Average monthly wage in industry at the starting point- Initial price of the object
- Average monthly salary in industry as of the valuation date
Direct method for determining physical wear
With the direct method, the coefficient of physical wear and tear of machinery and equipment is calculated based on the standard costs for their complete restoration to a new state:
Кф = Sз/Св,
Sз - the amount of standard costs for restoring the assessed object to a new condition, rub.;
St - cost of reproduction, rub.
The coefficient of physical wear determined by this method is somewhat underestimated, since it is not possible to completely restore the object to a new condition due to the presence of irreparable wear.
Indirect methods for determining physical wear and tear
Effective age method (lifetime method)
This is the most common method for determining physical wear, along with the method of expert analysis of physical condition.
As mentioned above, the actual service life of machines and equipment may differ from the standard due to various factors: work intensity and operating mode, quality and frequency of maintenance and repair, environmental conditions, etc.
When using the effective age method, the following terms and definitions apply:
Life time(economic life span, Vss) - the period of time from the date of installation to the date of withdrawal of the object from operation (or standard service life).
Remaining service life(In) - the estimated number of years before the facility is withdrawn from service (or the estimated remaining operating time).
Chronological(actual) age (Bx) - the number of years that have passed since the creation of the object (or operating time).
Effective age(Ve) - the difference between the service life and the remaining service life (or the amount of operating time of the object over the past years):
Ve = Vss - Vo
If data on equipment load is available, then the effective age can be determined by the formula:
Ve = Bx x Kzag
where Kzag is the equipment load factor. The coefficient of physical wear is equal to:
Kf = Ve/Vss
There are the following options for the relationship between effective and actual (chronological) age: 1) effective age is less than actual age; 2) equal to it; 3) the effective age is greater than the actual age.
First situation (Ve
The second situation (Be = Bx) arises when the equipment is operated in strict accordance with the technical specifications, as well as in cases where during operation there has been no significant improvement in technology in this area and there are no external reasons that change the cost of the equipment.
The third situation (Be > Bx) arises if the equipment was operated in violation of technical conditions and the frequency of maintenance was not observed, as well as in cases where technologies in this industry were improved and supply in this market segment increased. This situation is possible when the functional and economic obsolescence of equipment is greater than its physical wear and tear.
The service lives normalized by industry standards for various groups of equipment and mechanisms indicate the permissible operating time of the equipment without a noticeable change in the quality of the machines’ performance of their functions. It is assumed that operating conditions will correspond to those recommended by equipment manufacturers, and repair and maintenance work will be carried out on time and with high quality. This approach is convenient for determining depreciation charges, however, when assessing the market value of machinery and equipment, service life is usually only a guideline for the appraiser, and is defined as the reciprocal of the depreciation rate.
The service life of machinery and equipment is only advisory for property appraisers, since it reflects their capabilities for average operating conditions. In each specific case of determining the remaining service life of equipment, the actual physical wear and tear at the time of assessment should be taken into account.
Example 1
The service life of the machine is 20 years. The machine was put into operation at the end of 1998. As a result of incomplete loading, the effective age of the machine turned out to be 30% less than the actual age. Valuation date: June 2003. Determine the coefficient of physical wear of the machine.
2. Determine the load factor, assuming that the full load is 100%:
Kzag = (100-30)/ 100 = 0.7.
3. Determine the effective age of the machine:
Be = 0.7 x 4.5 = 3.15.
4. Determine the coefficient of physical wear of the machine:
Kf = 3.15/20 = 0.16.
Example 2
It is required to determine the coefficient of physical wear of a horizontal milling machine produced by Nizhny Novgorod JSC "ZeFS". Standard service life is 20 years (Vss). The machine was operated at partial load for 18 years (Bx). Upon inspection and analysis of its technical condition with the involvement of engineering and technical workers servicing the machine, it was determined that the machine can operate for another 5 years (B) with high-quality technical maintenance.
1. The effective age of the machine will be equal to:
Ve = Vss - Vo = 20-5 = 15 years.
2. The coefficient of physical wear and tear of the machine will be equal to:
Kf = Ve/(Ve + Vo) x 100% = 15/ (15 + 5) x 100 = 75%
For comparison, the coefficient of physical wear of this machine, calculated using the formula Kf = Vx/Vss x 100%, will be equal to:
Kf = 18/20 x 100% = 90%
The service life of equipment is significantly increased due to repairs, which involve replacing outdated and worn-out mechanism components with new ones and restoring interfaces in friction units. This is especially significant during major equipment overhauls, when the main components of the equipment are replaced and the basic properties of the most important parts of the machines are restored.
If the object has undergone major repairs, the coefficient of its physical wear and tear is determined as follows:
Kf = Ve/Vss
The effective age of the object is calculated using the formula:
Ve = Bx1 x K1+ Bx2 x K2 +...+ BXi x Ki,
Bx1, Bx2,..., Bi - respectively, the chronological age of parts of the object that were repaired at different times and were not repaired;
K1 and K2,..., Ki - the percentage of these parts in the total volume of the object.
The effective age of an object in this case is the weighted average chronological age of its parts. The effective age can also be determined by weighing the investment in the property (repair costs in monetary terms).
Example 3
After three years of operation, the machine underwent a major overhaul, as a result of which 20% of the parts were replaced with new ones. Determine the coefficient of physical wear and tear of the machine after a major overhaul, taking into account that its service life is 25 years.
1. Find the effective age of the machine as the weighted average chronological (actual) age of its parts, 20% of which after major repairs are 0 years old, and 80% are 3 years old:
Be = Bx1 x K1 + Bx2 x K2 = 0 x 0.2 + 3 x 0.8 = 2.4.
2. Determine the coefficient of physical wear of the machine:
Kf = 2.4 / 25 x 100% = 10%.
Example 4
It is necessary to determine the coefficient of physical wear of a mechanical press. The annual depreciation rate for A = 7.7%. Chronological age 12 years.
In the seventh year of operation, 15% of the press parts were replaced. After 20,000 operating hours (9 years of operation), the press was overhauled, 25% of parts and assemblies were replaced with new ones.
1. We determine the standard service life of the press as the reciprocal of the depreciation rate:
Bcc = 100%/ A = 100%/ 7.7 = 13 years
2. 15% of parts and assemblies have a chronological age:
Bxi = 12- 7 = 5 years.
3. 25% of parts and assemblies are of chronological age:
Bx2 = 12 - 9 = 3 years.
4. 60% (100% -15% - 25%) of parts and assemblies have a chronological age:
Vkhz = 12 years.
5. The effective age of the press will be equal to:
Ve = Bx1 x 0.15 + Bx2 x 0.25 + Bx3 x 0.6 = 5 x 0.15 + 3 x 0.25 + 12 x 0.6 = 0.75 + 0.75 + 7.2 = 8.7 years.
6. The coefficient of physical wear of the press will be equal to:
Kf = Ve/ Vss x 100% = 8.7/ 13 x 100% = 67%
Moscow, "Russian assessment", Editor V.P. Antonov
Article. 12. Methods for measuring (determining) physical wear and tear
Conventionally, it can be divided into direct and indirect methods for determining physical wear and tear.
Direct methods include accurate methods for determining wear, based on inspection of the object being assessed and measuring its various parameters. Indirect methods for assessing wear include assessment based on the general technical condition of the object as a whole, its actual service life, the study of its operating conditions and regulatory data.
One of the indirect methods for assessing wear is an integrated assessment of the technical condition. When using this method, it is possible to describe an object both element by element and enlarged. After inspection of the site, for the purpose of assessing machinery and equipment, a scale of physical wear and tear is used according to the Table below:
Expert scale for assessing the physical wear and tear of machinery and equipment
| State Description | Characteristics of technical condition |
Wear, % |
||
| Min. meaning | Max. meaning | Average value | ||
| New | New, installed and unused in excellent condition | 0% | 5% | 2,5% |
| Very good | Like new, only used for a short period of time and does not require any parts or repairs. | 10% | 15% | 12,5% |
| good | Used, but refurbished or modernized, in excellent condition. | 20% | 35% | 27,5% |
| Satisfactory | Used, requires some repairs or replacement of some consumable parts, such as bearings. | 40% | 60% | 50,0% |
| Usable | Used, requires significant repairs or replacement of some parts, such as motors or necessary parts. | 65% | 80% | 72,5% |
| Bad | Used, requires major (overhaul) repairs, such as replacement of moving parts or major structural elements. | 85% | 90% | 87,5% |
| Not for sale or scrap metal | There is no real prospect of sale, except for sale for scrap metal, i.e. cost of disposal of the main content of the material. | 95% | 100% | 97,5% |
Lifetime method consists of analyzing the relationship between the Appraisee's age/life and the effective age to obtain a percentage indicating how much of the Appraiser's economic life has been exhausted. Physical wear and tear using the life cycle method is calculated using the formula:
Physical wear and tear = Age/Lifespan*100%
As an indicator of the age of the Assessment Object, its effective or chronological age can be used:
- effective age- this is the age corresponding to the physical condition of the object and taking into account the possibility of its sale. Effective age is based on an assessment of the appearance, technical condition, economic factors affecting the value of the Valuation Object;
- chronological age– the period that has passed since the date of production/year of construction/overhaul/reconstruction of the Property being assessed.
The term of its economic or physical life can be used as the lifespan of the Valuation Object:
- economic life– the period of time during which the Valuation Object can be used for profit. During this period, improvements contribute to the value of the Property. The economic life of the Valuation Property ends when the improvements made do not contribute to the value of the Valuation Property due to its general obsolescence.
- physical life span– a period of time, normatively developed by the manufacturer, during which the Assessment Object is fit for use and complies with the parameters specified in it.
Functional wear– a decrease in the consumer attractiveness of certain properties of the Property being assessed, due to the development of new technologies in the production of similar machines or equipment, outdated space-planning and/or design characteristics of the buildings being assessed relative to modern construction standards. A decrease in the attractiveness of the Valuation Object due to these reasons entails its depreciation. Based on the reasons that cause this type of wear and tear, moral and technological wear and tear are distinguished:
- obsolescence– wear, the reason for which is, as a rule, the improvement of technical and economic parameters or design solutions in the production of similar equipment or the construction of buildings.
- technological wear and tear– wear caused by improvements in the structure of the technological cycle, changes in the composition and number of links in the technological chain.
As part of the assessment of machinery and equipment, functional wear can be determined according to the table below:
Expert scale for assessing the functional wear of machinery and equipment
| Description
state |
Characteristics of the functional state |
Wear, % |
||
| Min. meaning | Max. meaning | Average value | ||
| At the level of the best world standards | Complies with the best world standards and fits well with modern technological progress | 0% | 9% | 5% |
| Quite competitive | Quite competitive, but there are samples that are better in secondary parameters. It is used as part of the existing technological chain, although slightly outdated. | 10% | 29% | 20% |
| Competitive capable |
Competitive, but there are samples that are slightly better in basic parameters. It is used as part of the existing technological chain, although outdated. | 30% | 59% | 45% |
| Non-competitively capable | Uncompetitive, significantly inferior to the best world samples in basic parameters (almost 2 times). It is used as part of the existing technological chain, although outdated. | 60% | 79% | 70% |
| Hopelessly outdated | Hopelessly uncompetitive, discontinued, inferior to its analogues in all respects. Does not fit into the current technological process (not necessary within the current technology) | 80% | 100% | 90% |
Economic (external) wear and tear– loss of value due to the negative influence of external factors: reduction in demand for a certain type of product; increased competition; changes in the structure of raw material reserves; an increase in prices for raw materials, labor or utilities that is not supported by a corresponding increase in the price of manufactured products; inflation; high interest rates; legal restrictions; environmental factors, the emergence of new or disappearance of old market sectors, etc. External wear is determined by measuring the decrease in equipment utilization for various reasons. It can also compare two comparable objects, one of which shows signs of external wear and tear, and the other does not. The difference in sales prices is interpreted as external (economic) wear and tear.
As part of the assessment of machinery and equipment, economic depreciation can be determined according to the Table below
Expert scale for assessing the economic wear and tear of machinery and equipment
| State Description | Characteristics of the economic state | Wear, % |
| Liquid | Active supply and demand in the primary and secondary markets. Primary and secondary markets are sufficiently developed. There are a sufficient number of analogous objects on the markets. | 0% |
| Medium liquid | Active demand in the primary market. The primary market is represented by a sufficient number of analogue facilities and equipment manufacturing plants. Insignificant demand on the secondary market, caused by the narrow specialization of the equipment. A small number of analogue objects on the secondary market. | 10% |
| Liquidity below average | Developed demand in the primary market. A small number of manufacturing plants are represented on the primary market. Low demand in the secondary market, caused by the narrow specialization of the equipment and the individual design and technical characteristics of the equipment. A single number of analogous objects are presented on the secondary market. | 30% |
| Conditionally liquid | Limited demand in the primary market caused by the high cost and narrow specialization of equipment. One or two manufacturing plants are represented on the primary market. There is no demand in the secondary market due to the narrow specialization of the equipment and the individual design and technical characteristics of the equipment. Information about transactions on the secondary market is closed | 50% |
| Product turnover is prohibited | There is no supply and demand for equipment due to economic sanctions and regulatory bans on production | 100% |
Every person has long known that everything around us tends to wear out. This applies to both buildings and any equipment. Moreover, equipment and real estate items need to be replaced not only when they fail, but also when more modern equipment appears.
This will save significant amounts on repairs and equipment and result in faster and safer production. Specialists in the field of accounting and economics are familiar with these processes.
Wear detection
It is not difficult to understand what wear and tear is. This is the loss of the original properties of the object. This happens for many different reasons and their combination: natural, temporary, economic and technological. Progress and human influence have no less influence.
In accounting, this concept is closely intertwined with depreciation. Some people consider the concepts to be identical, but the difference is significant. Depreciation reflects the physical side of the production process, and depreciation reflects the economic side, that is, the redistribution of the cost of deformations to the cost of production and the allocation of funds for the purchase of new equipment.
The latter can become obsolete in different ways, which directly affects wear and tear. can be classified according to different criteria. There is physical wear and functional wear. Each of them is also divided into groups.
Physical deterioration
We are talking about the direct loss of the original properties during the use of objects. Depreciation can be represented as complete or partial. In the latter case, the equipment must be restored through repair. In other situations, only write-off or use as spare parts is permissible.
There is also a more detailed classification of physical wear and tear:
- first type - equipment wears out as a result of proper operation;
- of the second kind - nature, violation of the rules of use, etc. become the culprit for damage to equipment and buildings;
- continuous - gradual loss of original properties due to the use of equipment;
- emergency - sudden (hidden wear is a common cause).
The types of wear described above can be determined not only for the piece of equipment as a whole. But also for its constituent parts.
In terms of meaning, species are not particularly different from moral ones.
Functional wear
If with the physical everything is quite transparent, then in the case of the functional it should be clarified that here we are talking about a decrease in the attractiveness of machines as a result of the production of equipment using new technologies. Functional wear is divided into the following types:
- Partial - the equipment becomes unprofitable to use for the full production cycle, but it may still be suitable for some specific operations.
- Complete - wear and tear leads to the fact that the equipment cannot be used for production purposes. It is only suitable for disposal or use as spare parts.
Functional wear also has another classification - based on the reasons for its occurrence. It distinguishes the following types:
- Obsolescence is the appearance on the market of more advanced equipment similar to that used in production. Types are caused by excess capital or operating costs.
- Technological wear and tear - the emergence of more advanced production technology. It can be reduced due to the number and composition of equipment.
Economic wear and tear
Not only nature and time influence types of wear. The economy, its development and indicators also affect the depreciation of technology. Wear is directly related to factors such as:
- Decrease in demand for products manufactured by the enterprise.
- Inflation. There is a need to buy raw materials at higher prices, raise workers' wages, and other similar costs arise, but prices for products do not increase in an amount corresponding to the costs.
- Increased competition.
- An increase in interest rates on loans for organizations issued for certain purposes (for example, the purchase of new equipment).
- Changes in commodity markets.
- Introducing restrictions on the use of certain models of equipment for environmental reasons.
Both real estate and different groups of equipment can become obsolete and lose their properties. Each enterprise has its own complete list of where wear and tear occurs. Types of wear also have their own classification.
Tools
The service life and compliance with instructions affect the condition of the instruments. When used actively or incorrectly, they are more susceptible to deformation and lose their original properties. Types of tool wear are varied:
- surface deformation;
- formation of recesses;
- plastic deformation;
- spalling;
- cracks;
- growths of various types.
Each of them has its own causes and ways to eliminate damage. Measures taken to combat tool wear will help extend tool life and produce better quality work.
Details
As a result of continued use, the size, shape, and integrity of equipment parts may change. This happens for many reasons, which allow us to distinguish the following types of wear of parts:
- mechanical;
- molecular mechanical;
- corrosion-mechanical.
An excellent preventive measure is the timely lubrication of parts, regardless of whether the equipment (machines, machines, equipment, etc.) is in operation or in a warehouse.
Building
Any structure loses its strength over time. You can extend its life both through proper operation and timely repairs or reconstruction. Types of wear and tear on buildings are as follows:
- Physical - the impact of time and external factors on an object.
- Functional - when the building ceases to meet the requirements for structures and activities of this type.
- External - the influence exerted by external economic factors.
In this case, objects are divided into elements of two categories: long-term and subject to rapid wear. The first group includes walls, and the second group includes the roof, pipes, etc.
The types of wear and tear on real estate are the same, regardless of the nature of its use and location. The only difference is that physical wear and tear in different climatic conditions can occur more slowly or faster.
There are also not only types of equipment wear, but also methods for determining equipment deformation. Let's look at them.
Methods: how to determine wear
Types of wear and tear are often defined as physical and moral, without a more detailed division into subgroups. The following methods will help determine their degree:
- observation - a direct method for determining wear (inspection of the object and various tests);
- by lifespan - the ratio of the standard period of operation to the time of use makes it clear by what percentage the equipment has lost its original properties;
- integrated assessment of technical condition - determination of wear on a special scale;
- direct monetary measurement - the ratio of the cost of repairs to the price of a new unit of equipment;
- operating profitability is the ratio of the reduction to the maximum possible.
Each of the methods more or less accurately reflects the state of objects, but in practice the direct method is used much less frequently than the others.
Accounting methods
As it becomes clear, many different types of wear can be defined and classified. Depreciation on them is also calculated using several methods. This:
- linear;
- by the sum of years of useful use;
- proportional to the volume of products produced.
All these methods are used in enterprise accounting, depending on what the company does and what its production volume is.
In the life and activities of every enterprise, great attention must be paid to wear and tear. It is through the correct use of equipment and real estate items, timely repairs and replacements that the company will receive high-quality goods at the minimum necessary costs.
From the moment of the start of operation, any equipment is subject to wear and tear, which increases with the increase in the service life of the objects and leads to the loss of part of their usefulness and, as a consequence, a certain part of the value.
In valuation practice, it is customary to distinguish between direct and indirect methods for determining the amount of physical wear and tear.
In other words, wear and tear is the loss of value (depreciation) of property during operation under the influence of various factors of obsolescence and natural-temporal influences.
The causes of wear and tear may relate either to the object itself, or to the immediate environment of this object (the emergence of more advanced and competitive analogues, the emergence of new technologies or changes in the technological chain in which the object is included), or in areas not directly related to the object, then there are external to it.
The main factors of impairment (obsolescence) are usually considered physical wear and tear, functional and economic obsolescence.
Physical deterioration– deterioration of the initial technical and economic properties due to the natural wear and tear of a particular object during operation and under the influence of various natural factors. In other words, this is the wear and tear of the materials from which the object is created, the loss of its original qualities, the gradual destruction of structures, etc.
Functional wear– a decrease in the consumer attractiveness of certain properties of an object, due to the development of new technologies in the production of similar machines and equipment. This decrease in attractiveness, in turn, causes depreciation.
Functional obsolescence manifests itself with the advent of competing objects, and not gradually, like physical wear and tear.
For the reasons that caused functional obsolescence, moral and technological wear and tear are distinguished.
Functional obsolescence is calculated using the formula:
K fun = 1-(P o /P a) n
where: P o – productivity of the equipment being evaluated;
P a – productivity of new equipment or analogue;
n – braking coefficient.
Obsolescence – This is wear, the reason for which is an improvement in the properties of products similar to the one being evaluated (changes in technical parameters or design solutions, the emergence of new capabilities, greater environmental friendliness, ergonomics, etc.) or a reduction in the cost of their production.
Obsolescence can be divided into three groups, based on cost items, changes in the structure of which are associated with wear and tear:
1. Obsolescence caused by excess capital costs (increased investment costs).
2. Obsolescence due to excessive operating costs.
3. Obsolescence due to low environmental friendliness, ergonomics, etc.
Technological wear – This is wear and tear, the cause of which is differences in the design and composition of structural materials used in analogous objects, compared to the object being evaluated, as well as a change in the technological production cycle in which the object being evaluated is included.
Thus, technological wear and tear, as opposed to moral wear and tear, makes the equipment in question unnecessary, in principle, within the framework of the new technology.
It should also be noted that, unlike moral obsolescence, technological depreciation can only be determined expertly and, therefore, approximately.
External wear and tear (economic obsolescence)– depreciation of property due to the influence of external factors, namely: changes in optimal use, legislative changes, changes in the ratio of supply and demand, deterioration in the quality of raw materials, labor qualifications, etc.
Economic obsolescence is almost always considered irreversible because the potential cost of eliminating the external elements that caused it always, with rare exceptions, exceeds the value added to the property.
Since economic obsolescence is the result of external influences that affect the enterprise as a whole, and not each object individually or a group of them, economic obsolescence is more often considered when applying the income approach.
Among the reasons for economic obsolescence are the following:
· reduction in demand;
· increased competition;
· changes in the structure of raw material reserves;
· an increase in prices for raw materials, labor or utilities without a corresponding increase in the price of manufactured products;
· inflation;
· high interest rates;
· legislative restrictions;
· changes in the structure of the goods market;
· environmental factors.
When calculating the value of economic obsolescence, the principle of substitution is used, i.e. take into account the utility of the object. Due to economic reasons, some of the equipment (investments, capacities, etc.) is not used and does not bring any benefit. And since the utility of an object due to underutilization is less than that of an object operating at full productivity, its value decreases.
Underutilization, and the resulting loss of value, is expressed by the equation:
where k e is the coefficient of economic obsolescence;
N р – real power or nominal performance of the object;
N n – rated power or rated performance of the facility;
n – braking coefficient, Chilton coefficient, reflecting the influence of the law of economies of scale.
Underutilization can cause functional obsolescence and sometimes cause physical wear and tear on equipment.
Since any object can be subject to different types of wear at the same time, the accumulated wear is taken into account when assessing.
Accumulated wear the valuation object is defined as the sum of value losses under the influence of all factors of obsolescence (wear and tear).
Functional and economic depreciation is often taken into account indirectly, through the prices of analogue objects, while physical depreciation should be taken into account directly, since it is specific to each valuation object.
Physical wear and tear is a loss of value caused by natural wear and tear during operation and various natural environmental influences.
Thus, physical depreciation (PH) is simply the wear and tear of an asset due to its use. The reasons for the occurrence of FI are related to the object itself and the environment in which it is operated. Factors that require study when calculating FI:
- degree of natural wear (aging ) during operation – age of maintenance;
- level of exposure to natural (climatic ) factors or surrounding production environment – dustiness, humidity, gas contamination, etc.;
- intensity of equipment operation – shift ratio;
- quality of content, regularity And maintenance efficiency – compliance with the schedule for current and major repairs.
Generally, physical wear and tear is measured as a percentage; a new asset has 0 depreciation, while a fully used asset has 100%.
Physical wear and tear is determined by analyzing all plant data, which includes: direct comparisons with modern machines, the use of accumulated experience of maintenance personnel, physical inspection of existing plants, analysis of material and technical maintenance costs, forecasting the profitability of a given equipment and expected economic life.
Excessive wear often deteriorates the tolerances of production equipment, leading to significant increases in scrap and ultimately failure to meet accepted manufacturing standards. This may subsequently require large operating and repair costs, significantly higher than the average for similar equipment.
Theoretically, physical wear and tear would seem to be measurable objectively. A machine will produce a certain number of units of output over its entire physical life. Assuming that the relevant statistics are available, that the machine has never been rebuilt or misused, and that all such assets operate in the same way, then the simple ratio of output produced to total expected output will provide an objective measure of physical wear and tear. It is obvious that the machines are modified, sometimes used in violation of operating rules, and their quality differs. Unless you are working with large assets, production statistics are not maintained for individual assets. Therefore, in reality, measuring the amount of physical deterioration is subjective, since the appraiser must determine for himself how similar the operating conditions of the assets were in the past in order to make a conclusion about the physical condition of the appraised object.
It is possible to determine the amount of direct costs that would be required to repair or remodel the property to like new condition. These costs are also called “remediation costs.” Unfortunately, the physical wear and tear of most machines currently produced cannot be completely eliminated, so a part called "fatal wear" is usually isolated.
The appraiser must rely on the facts relating to the property in question, particularly its age and use. For example, the physical wear and tear on a slide rule still in its case, shrink-wrapped and never used is zero percent. At the same time, it is 100% functionally and economically obsolete for the purposes for which it was designed and manufactured.
Operating mode – one of the most important indicators of physical wear and tear. Equipment operating 24 hours a day wears out faster than the same equipment operating 8 hours a day. Equipment that is operated in a dusty, dirty, abrasive and/or corrosive atmosphere will wear out faster than equipment that is operated in a clean environment. Cars that have just undergone a major overhaul are in better physical condition than those that require repairs.
When an asset such as a machine is rebuilt, its degree of physical deterioration is only partially corrected because the rebuilt machine is still not new and has some signs of physical deterioration (fatal) that cannot be corrected. This difference can be measured by comparing the selling price of a new piece of equipment and a factory refurbished machine.
Although there may be different opinions regarding the condition of the same object, ultimately the measure of physical wear and tear is determined by comparing the condition of the assessed object with a similar new one.
All the above considerations and ideas underlie the methods for calculating physical wear and tear. The possibility of its objective measurement using such methods is very conditional. Most methods are of an expert-analytical nature, i.e. is based on expert opinion, and, therefore, these methods are not without subjectivity.
The following methods for measuring physical wear are known:
- observation (examination) of the condition;
- effective age;
- direct monetary measurement;
- element-by-element calculation;
- decrease in profitability;
- reduction in consumer properties;
- stages of the repair cycle.
Condition observation method
Observation state is a comparison procedure, comparing the state of the assets being valued with a similar new asset.
This procedure involves actually identifying visually identifiable service wear items and converting the observations into percentages. It also includes consultation with qualified plant personnel regarding aspects of the physical condition of equipment that are not readily apparent, such as internal corrosion of tanks. Based on the factual data obtained, the appraiser must draw up a conclusion and express it as a percentage adjustment deducted from the reproduction/replacement cost.
Observation also means the physical inspection of a property to determine (predict) its remaining life.
Observation also involves studying the operating history of the object being assessed and talking with engineers and maintenance personnel.
Life time (average economic life ) (Average life ) – The average or usual expected economic life (life) of a property while it produces income for its owner.
Estimated remaining life (Estimated remaining life ) is the period, expressed in years, during which assets or groups of assets are expected to remain in use.
State – a characteristic that can only be determined by observation.
The appraiser must clearly agree with the client on the definition of different types of condition. It makes sense to include definitions of different types of condition in the descriptive part of the contract for the valuation of plant and equipment each time in order to avoid their different interpretation. A description of the definitions of the various types of condition should also be included in the assessment report. Below is a suggested set of definitions.
Let's consider the main types of condition.
Very good (OH). Describes a piece of equipment in excellent condition, fit for use for its intended purpose and design, and not requiring modification or repair or unusual maintenance as of the date of inspection or in the near future.
Good (X). The condition of those items of equipment that have been modified or repaired and are being used in full or nearly complete accordance with their specifications.
Satisfactory (U). The condition of such items of equipment which are used below their full specification as a result of the effects of age and/or use and require general repair and replacement of some minor items in the near future to bring the level of use up to or around its original specification.
Bad (P). The condition of such pieces of equipment that can only be used to a significantly reduced extent compared to their full specification and cannot be used to their full capacity in their current condition without undergoing significant repairs and/or replacement of major items in the near future.
Scrap condition (L). The condition of those pieces of equipment that are no longer capable of practical service or operation, regardless of repairs or modifications to which they may have been subjected. This definition applies to items of equipment that have reached 100% of their useful life or are 100% technologically or functionally obsolete.
Table data 5.2 can be used to establish the relationship between physical deterioration, condition and remaining service life.
Table 5.2
Wear reference table
|
State |
Remaining service life, % |
|
|
New |
||
|
New, installed and unused unit in excellent condition |
||
|
Very good |
||
|
Like new, only slightly used and no parts or repairs required |
||
|
good |
||
|
Used property but renovated or updated and in excellent condition |
||
|
Satisfactory |
||
|
Used property that requires some repairs or replacement of some parts such as bearings |
||
|
Usable |
||
|
Used property in working order requiring significant repairs or replacement of some parts such as motors or necessary parts |
||
|
Bad |
||
|
Used property requiring major repairs, such as replacement of moving parts or major structural elements |
||
|
Not for sale or scrap |
||
|
There is no real prospect of being sold, except for scrap, i.e. cost of disposal of the main content of the material |
||
Age - a factor that to some extent determines the wear and tear of a machine, since part of its useful life has already been used.
This is reflected in a reduction in the present value of the future benefits to be received from owning the property. It is reasonable to assume that a machine or piece of equipment will have its highest appraised value when it is new, unused, installed and ready to go.
However, age cannot be considered as the only factor in calculating depreciation. dilapidation defined as deterioration.
Deterioration resulting from use and other factors reflects the loss in value caused by physical wear and tear. Obviously, condition is a factor that must be taken into account when assessing wear and tear for grading purposes. Moreover, the remaining useful life directly depends on the condition. To establish a connection between qualitative and quantitative characteristics - between a descriptively specified condition, the percentage of wear and tear and the remaining useful life of an object - the appraiser can use the table. 5.2. The use of clear definitions of various conditions (see above) will reduce the role of subjective factors in determining wear.
The condition observation (examination) method involves the involvement of specialists servicing maintenance facilities to assess the physical condition of machines and equipment in accordance with the rating scale contained in Table. 5.2.
Effective age method
The physical condition of an object can also be assessed by the following simple relationship:
For given units of measurement, this coefficient shows degree of use asset to date in relation to its total expected life (full depletion). For example, suppose the normal physical life of a machine is 100,000 hours. If a particular machine has already been in service for 40,000 hours, it would be logical to conclude that the physical wear and tear is approximately 40% (40,000/100,000 100%). If we are talking about a new asset, then its total service life is equal to its expected service life, which in this example is 100,000 hours.
Thus, the essence of this method comes down to analyzing the “Age/Service Life” relationship. In the numerator of this formula we should consider effective age (Effective age ), because if valid age (or chronological ) is defined as the number of years that have passed since the creation of the asset, then effective age reflects the amount of operating time of an asset over the past years of its operation. For example, a machine that has recently been rebuilt with many parts replaced with new ones and has a chronological age of 20 years will have an effective age that is slightly lower because the machine is in better condition due to the overhaul. The denominator in this formula reflects the entire the expected economic life of the asset.
The disadvantage of these conclusions is that this is an example linear depreciation, the accumulation process of which, as is known, is nonlinear.
To some extent, this drawback can be eliminated by considering the following three qualitatively different situations, for which the service life (denominator) can have three different calculation methods depending on the age and operating conditions of the asset:
standard service life, – number of years this asset will last plus expected remaining life ()
Determining the effective age (numerator) for each of the three situations above is based on an analysis of the condition of the property, the number of years it has been in use, and the remaining useful life at that point in time. Typically, during the first few years of a property's life, its effective age and chronological age are the same (or nearly so) ().
However, as an asset continues to be used, its effective age gradually changes depending on the intensity of use of the property, its physical environment, the quality of its maintenance and other similar factors. Effective age serves as an indicator to help estimate the future usefulness of assets ().
For example, a piece of equipment whose chronological age is years may have a standard service life, but its remaining service life T ost can be estimated at 6 years, which means her effective age is a year. This is considered to be the result of very good logistics, poor utilization, or both.
Let's look at examples of using the effective age method for the three situations described above.
Example 5.3. Let the asset be one year and its standard service life be 20 years, then
Example 5.4. The equipment is 9 years old, the standard service life is 12 years, from a conversation with the service personnel the appraiser concludes that the remaining service life of the equipment is 5 years, then
Example 5.5. The standard service life of equipment is 12 years, chronological age is 15 years, while the remaining life is 2 years, then
In the latter case, the total output (denominator) is calculated as the sum of the hours (years) already worked to date plus the remaining useful life, expressed in hours (years). If the expected service life of the machine is 100,000 hours, it has exhausted them and is expected to work for another 25,000 hours, then FI = 80%, obtained as follows:
Thus, the method under consideration is to analyze the Age/Life relationship, using the standard life and effective age of the object being valued to obtain a value, expressed as a percentage, indicating how much of its economic life has already been consumed.
It is believed that this method can be used to measure irremovable physical deterioration, which is usually expressed as a percentage of replacement cost:
where is the effective age; – length of remaining useful life.
In reality, the useful life expectancy () of even a single machine can vary greatly.
A-priory economic life Maintenance is the period of time (or service) from the date of its installation to the date of removal of the machine from service.
However, the useful life of an asset can be affected by many circumstances. They include the following:
- how often the machine is used;
- what was the age of the car at the time of its purchase;
- how often it was repaired, or updated, or its parts were replaced;
- in what climate it was operated.
Useful life expectancy may also be affected by technological improvements, technological progress, reasonably foreseeable economic changes, relocation of business centers, prohibitive laws and other causes. All this must be taken into account before determining the expected useful life of the machine.
The useful life for the same type of machine may vary depending on the user. The calculation of the useful life of a machine must be based on an analysis of the specific current conditions existing in the plant in which it is used.
The advantage of using the Age/Life method is that the effective age can often be calculated from the fixed assets recorded in the client's financial records. The problem with using this method is hidden in estimating the remaining physical life of the asset. If some physical factors are known that can limit physical life, then an investigation should be carried out.
Although the Age/Life method is described here to calculate physical deterioration, it can also be used to estimate other depreciation elements if the necessary information is available. For example, let's say you estimate the treatment plant and existing assets are five years old and have a remaining physical life of fifteen years. In this case, physical wear and tear will be 25% (5/20 100%). Let's further assume that a law has been issued requiring owners to replace their existing equipment with something more environmentally friendly within the next three years. Since the remaining economic life due to the new legislation is three years, the total depreciation (physical, functional and economic) will be 62.5%, i.e.
Once again, this concept must be used in light of the facts and circumstances that affect the object being assessed.
In the broadest sense, using this technique, we are dealing with straightforward depreciation method. With the help of analysis, the place of the assessed object at a specific moment in its life cycle is determined. When making adjustments taking into account existing conditions in the past and future, as well as its current state, such analysis becomes an important tool in the assessment process.
The Age/Life Method is most useful for assets that are new or have served less than half their total service life.
When an item requires significant costs to correct its physical condition, or when any of its components that have a short remaining life need to be replaced, it is appropriate for the estimator to use this information in calculating avoidable physical deterioration using the method described below.
Direct monetary measurement method
It is assumed that physical wear and tear is measured in monetary units. The method is used when individual elements are worn out and can be replaced. This type of wear is called removable wear. For machinery and equipment, this means replacing major components or incurring renovation costs. Examples include replacing an engine, sandblasting and painting process tanks, or upgrading machine tools.
The method consists of calculating the amount of money that would be required to eliminate wear and tear and return the asset to a new condition. In most cases it is not economically feasible or physically possible to eliminate all wear, but some of it can be calculated using this method.
For example, you inspected a car and determined that it could be restored to a new condition, provided that certain manipulations were done to it. During your inspection, you discover that the machine has a bearing that is almost completely worn out. You will also notice that the car is showing some signs of corrosion in areas where the paint has peeled off. Finally, you discover that the tool holder is very worn and needs to be replaced. Provided that the parts are repaired or replaced, the machine will not be distinguishable from new. As a result of your research, you determined the repair costs as follows:
Bearing replacement $250
Replacement of tool holder $100.
Stripping and painting $150.
Total $500
The cost of a new car, the same as the one being appraised, is $3,500.
To determine the amount of removable physical wear and tear as a percentage, the cost of eliminating it is divided by the cost of a new machine. Removable physical wear and tear, %, will be
The direct method of calculating wear is applicable in cases where the cost (C) of new maintenance and the costs (3) that must be incurred in order to bring a worn-out object to a new state are known. In this case, wear is found from the expression
When using this method, the appraiser must be able to separate the types of wear that can be repaired from the types that cannot be repaired. The main difference between these two types of wear and tear is that one of them can be eliminated through economic means, while the other cannot. By separating these wear and tear elements, we analyze the asset being valued from two perspectives. The removable portion of wear and tear can be assessed directly in monetary units, but depreciation for non-removable elements must be calculated by condition observation or using age/life analysis. The sum of removable and irreparable wear is total physical deterioration of an existing asset.
When determining avoidable physical deterioration, the main sources of information are capital cost data, both historical and planned, production documentation, and consultation with technical personnel. Based on historical capital expenditure data, the appraiser learns how much money was invested in a particular asset. An appraiser may discover that an additional amount has recently been spent on an asset and conclude that the asset is now in relatively good condition. If little money has been spent on an asset, this may indicate that the asset is in need of major repairs. When analyzing future planned capital expenditures, the appraiser can find out which assets the planned expenditures relate to. The analysis may show that an asset is nearing the end of its useful life (and may also reveal functional or economic problems). Studying production documentation will allow you to find out how certain assets were used. Decreased performance will indicate physical problems. If performance levels remain high over a long period of time, this may indicate increased physical wear and tear due to usage, leading to a shortened asset life or the need for major repairs.
After studying the documentation, it is worth discussing the condition of the equipment with various specialists from the maintenance and technical personnel. It is extremely difficult, if not impossible, for an appraiser, or any outsider, to determine the condition of equipment without consulting those who work on or maintain the equipment every day. From such conversations, the appraiser must extract useful information, which ultimately forms additional information on the basis of which a conclusion is made.
If a business is planning a complete replacement of equipment, this may be due to its current physical condition or to solve some functional or economic problems associated with it. In the latter case, we are dealing with types of wear and tear other than physical, affecting the asset being valued.
Element-by-element calculation method
This method is a generalization of the effective age method and is used to determine the effective age of a multi-element asset or group of assets by weighing investments in this asset by their value. Weighting should be done fairly and take into account the amount of money invested or withdrawn over the life of the asset as weighting factors. The procedure can be applied both to one component asset (if the records are sufficiently detailed) and to a group of assets, which is most common.
Example 5.6. Determine the weighted average effective age of the processing plant.
The problem is to calculate the effective age of an asset valued in 2012. There are data on initial costs and acquisition dates. As a result of the research, it turns out that the property was purchased in 2003 and additional investments were made in 2006 and 2008. A major overhaul was carried out in 2011, as a result of which some of the original equipment was replaced.
The first step is to create a basis for comparison, which in this case will be represented by indexed initial cost. It is found using the corresponding cost index to the initial cost for each year (Table 5.3).
Table 5.3
Determination of indexed cost
The original cost of $42,000 and indexed cost of $81,100 may be misleading because they include excess costs associated with major renovations in 2011. In other words, these costs double on those assets that were replaced during the 2011 renovation. d. For example, if a pump was replaced in 2011, the cost of the pump was likely counted twice: first in 2003 for the initial investment and again in 2011. To make adjustments, you must subtract the incremental (or excess) investment. For example, 2011 costs are reduced to 2003 dollar amounts through “reverse indexation,” i.e.
The initial costs and indexed initial costs are revised and the excess investment is subtracted, after which the new values are obtained in the table. 5.4.
The next step is to determine the age of the investment. This is done by multiplying the indexed initial cost by the age of the investment (Table 5.5).
Table 5.4
Original and indexed cost
Table 5.5
Determination of the weighted investment amount
The last step is definition weighted effective age by dividing the weighted investment by the indexed cost, i.e.
Let us now assume that the standard service life of a given multi-element asset is 25 years, then its total physical depreciation can be calculated using the already found weighted effective age as follows:
As noted, the advantage of using the effective age method is that the effective age of an asset can be reasonably calculated, assuming that the client's financial documentation is provided.
The problem with using this method is estimating the remaining physical life of the asset (). When valuing a multi-element asset or group of assets, it is more difficult for the appraiser to predict the future. Let's look at how this problem is solved.
Example 5.7. Determine the (weighted average) remaining service life of the process furnace.
A process furnace operating continuously, 24 hours a day, seven days a week, is evaluated. From consultations with maintenance personnel, you learned that the furnace has been working properly since installation for about 12 years. During the consultation, you also found out that the hog chimney was hot repaired approximately 5 years ago, and some pumps, pipes and other peripheral equipment were replaced about two years ago. In addition, you have determined that the fireproof masonry will need to be replaced in approximately 5 years.
Let's assume that you calculated the effective age similarly to example 5.6 and it was 8 years.
The next step is to estimate the composite (weighted) remaining life of the furnace as a whole. During subsequent consultations, you find that after replacing the refractories, the furnace can operate for another 15 years, so that the remaining service life of the structural elements is 20 years. As for the rest of the equipment, it is currently in relatively good condition, but technical and management personnel do not expect it to last as long as the main structural components. The management of the enterprise intends to carry out some repair work to increase the service life of this equipment. Thus, the weighted remaining service life of the furnace can be calculated as shown in Table. 5.6.
Table 5.6
Determination of weighted remaining service life
Cumulative physical wear and tear is simply the ratio of the weighted effective age to the total economic life of the furnace, which is 35.5%, i.e.
In this case, we evaluate the physical condition of the furnace as it currently exists. They did not take into account the costs of additional repairs that would be necessary to extend the life of the asset after the end of its currently expected service life.
Thus, the method of element-by-element calculation of physical depreciation is based on the procedure of weighing the effective age or remaining service life of each of the elements of a multi-element asset, taking into account the share of the cost of these elements (investments) as weighting coefficients in the cost of the assessed object as a whole, followed by determining the total physical depreciation using the formula "Age/Lifetime".
Another option for implementing the element-by-element calculation method is based on determining wear FIk for each of k elements of machinery and equipment according to the formula “Age/Service Life” and a weighted summation of the obtained values, taking into account the shares of the cost () of these elements in the cost C of the assessed object as a whole as weighting coefficients. Thus, the total physical depreciation of the valuation object is determined as the sum of the calculated depreciation of all its elements, weighted by the shares of their cost:
Yield reduction method
It is based on the assumption that the increase in physical wear and tear is proportional to the decrease in the profitability of equipment, i.e. reduction in net profit, defined as the difference between revenue and costs. The FI value is determined as follows:
where is the profit received from the operation of new machines; – profit in the current time interval.
Example 5.8. In table 5.7 shows data on the operation of a metal-cutting machine purchased new in the first quarter of 2009. Determine the physical wear and tear of the machine in the first quarter of 2012.
Table 5.7
Machine performance indicators
For the first quarter of 2012 we have
The method is applicable in cases where there is reliable information about the economic performance of equipment in a retrospective period. It gives the correct result only in the case when the decrease in profitability is not due to the presence of additional functional and economic obsolescence.
Method for reducing consumer properties
Reflects the dependence of consumer properties (CP) of machines and equipment on wear. Generalized PS are calculated as the sum of individual PSk, taking into account their weighting coefficients:
During operation, the substations are reduced by an amount, and physical wear will be
(5.5)
This method requires testing of the equipment being evaluated and the availability of technical, economic and technological documentation for the object being evaluated.
Example 5.9. Main PS press – performance And reliability. According to expert estimates, their weights are 0.6 and 0.4, respectively. An analysis of the press’s operation showed that its actual productivity is 500 parts/hour, and its nominal productivity is 600 parts. The actual reliability indicator is MTBF - 300 hours, nominal operating time - 500 hours. Determine the physical wear of the press.
Press productivity is characterized by the number of parts produced per unit of time. Nominal productivity Pn = 600 parts/h, actual Pf = 500 parts/h. Thus, decreased productivity
Decreased reliability determined by the reduction in time between failures as
Physical wear and tear is calculated taking into account (determined experimentally) weighting coefficients of the significance of the considered consumer properties of the press:
The methods set out in subparagraph 5.2.2 are quite sufficient to professionally assess the physical wear of both simple and composite (multi-element) maintenance equipment.
Besides age And state When assessing equipment and calculating its wear, other factors should be taken into account, such as obsolescence and loss of usefulness, which must be included in the overall analysis of cumulative wear.
Exist obsolescence of three types, which may affect the assessed value of the machine: (functional technological, functional operational and economic (external). Functional and economic obsolescence are measured and taken into account when determining the reasonable market value of movable property. Obsolescence is generally recognized as a factor leading to a further reduction from the upper limit of the assessed value property according to the cost approach.
- The following definition is given: "...Physical wear and tear of machinery and equipment is a change in the size, shape, mass or condition of surfaces due to wear due to constant loads or due to destruction of the surface layer due to friction." This definition from a course in mechanical engineering, while correct, is essentially technical, not economic, used to conduct an economic assessment, which is carried out by appraisers.
- The remark also applies to methods for assessing other types of wear and tear, since this is the essence of the profession of an appraiser, whose main product of activity is his professional opinion, and it cannot but be subjective.
- Method in the original in [C| and is called "Formula/Coefficient".
- The original method is called "Direct Dollar".
- This and the following two methods, used during the planned economy, when there was no idea of functional and economic obsolescence, are presented exclusively in the domestic methodological literature. We refrain from making recommendations on their use, since a decrease in profitability, for example, may be associated not only with the presence of physical wear and tear. Moreover, the latter method requires the use of a large (about two dozen) number of operational parameters, such as operating time after major repairs, shift ratio, intra-shift utilization ratio, etc., and is not the most effective tool in the appraiser’s arsenal.
- To increase the degree of reliability, it is recommended to involve several experts, and the resulting wear value is found from the relationship: , where FI is physical wear; – FI assessment k-m expert, and the weighting coefficients that determine the weight of the opinion k th expert, are bound by the following condition: . However, “increasing the reliability” of an assessment in this way actually increases the degree of its subjectivity, since the subjectivity of expert opinions regarding the level of physical deterioration of an object is superimposed by the subjectivity of the weight of each such opinion when calculating weighting coefficients.
- Kasyanenko T. G. Evaluation of machinery and equipment: textbook. allowance. SPb.: Publishing house SPbGUEF, 2002. P. 149.
- The statement is not undisputed. There is reason to believe that this formula measures general physical wear and tear. If the remaining lifespan is limited by the emergence of new technologies (the emergence of models that exclude the use of old models) or the introduction of regulations that limit the remaining service life of the equipment, then this ratio measures functional or economic or, in general, total wear and tear.
- Repair is considered a way to eliminate that part of physical wear and tear that is called removable, and maintenance modernization is considered to be a way to eliminate functional obsolescence.
- See: , p. 51.