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Engineering Valuation is an art of appraising engineering properties. The estimation of

the monetary measure of the desirability of ownership of the commodities, small

properties and engineering infrastructures is accomplished daily in the commercial

world, often in the informal and intuitive manner. However, the complex society at

present demands systematic and theoretically accurate procedures when consideration is

given to the appraisal of engineering infrastructure. An effective way of conducting this

appraisal of engineering assets is by engineering evaluation, which is carried out by a

competent engineer.

As a result of immense important of engineering valuation to the development of

engineering in Nigeria, the course was introduced into the curriculum of the faculty of

technology of the Obafemi Awolowo University, Ile-Ife.

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EMDI was established 1995 under the directorship of Prof. Adewoye. Its purpose of

establishment is to re engineer the nation through research on materials which is the

backbone of technology.
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The main objective of this report is to present a detailed engineering valuation report at

the Manufacturing section during the six months industrial training at Engineering

Materials Development Institute (EMDI).‘

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At EMDI, the manufacturing department works hand in hand with the foundry to ensure

proper functioning of the institute on materials research. Engineering valuation, the art

of estimating the value of properties where the professional engineering knowledge and

judgement are essential, was carried out on the machines at the manufacturing

workshop.

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As a result of lack of concrete data concerning the cost, purchase, date e.t.c. of machines

at the manufacturing workshop. Assumptions were made concerning the date of

purchase which was at the commissioning of the institute (1995).

Some machines were purchased second hand while some purchased new and at the

inception of the institute. Machines purchased second hand were difficult to estimate the

exact value of the machine at the time of purchase. The cost of second hand machines

were obtained from eBay, America (a free internet market for used machines put up for
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minimum bid). The prices were taken as salvage value while the original prices of the

machines were obtained from the manufacturers.

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The purpose for which engineering valuation are carried out can be categorized into

two broad headings

‘ Oinancial purpose valuation

‘ Insurance purpose valuation



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The valuation of engineering assets for financial purposes is usually required for the

following reasons: company annual accounts, floating of shares, merging of interest s,

mortgage, business changing hands, compensation, probate, rating, etc.

These reasons show clearly that visible and invisible monetary transactions are required

in financial purpose valuation for physical existence of plant and machinery assets.

Valuation for financial purposes could further be split into two vis, valuation for on-

going business concern and valuation for disposal (Adewunmi, 2008)



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In financial purpose valuation for the on-going business, a physical existence and

continuation of use is the operating clause in the calculation of values. This means

existing use value (EUV) is the one to be determined. The EUV is the price that a

purchaser would pay to acquire an asset as part of the business which is currently
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evaluated. To arrive at the existing use value of engineering assets of a business, an

engineer needs to know and determine amongst others the following: the current cost of

the assets, the year of commissioning, the unexpired economic life, the workload,

availability of spare parts, availability of raw materials and general condition of the

plant. The method of engineering valuation used is the depreciated replacement cost

method.‘



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This has two stages of operation. The first is the equipment as new as in age and

obsolescence. The rate of depreciation is then calculated from the unexpired economic

life span of the plant and replacement cost. The value gotten afterward is called Existing

Use Value (EUV)‘

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Depreciated is the decrease in value of physical properties with the passage of time.

Depreciated has a lot of causes, some of which are difficult to predict or anticipate.

Decrease in value with the passage of time may be broadly classified as follows: ‘

‘ Normal depreciation which can be sub-divided into

(a) Physical (b) Ounctional

‘ Depreciation due to change in price level

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The straight line method of computing depreciation assumes that the loss in is directly

proportional to the age of the asset. The following definitions are used in the equations

below. If we define: ‘

N = depreciable life of the asset in years

B = unadjusted cost basis

dk = annual depreciation deduction in the kth year (1< k < N)

BVk = book value at end of year k

S = salvage value at the end of depreciable life of the asset

Dk = cumulative depreciation through year k

K = Age of property

Then,

dk = (B - S)/ N

Dk = (B - S) k / N

BVk = B - Dk
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In the declining balance method, sometimes called constant percentage method or the

Matheson formula, it is assumed that the annual cost of depreciation is a fixed

percentages of the book value at the beginning of the year (Koya, 2008). The ratio is

depreciation in any one year to the book value at the beginning of the year is constant

through the life of the asset and is designated by R (0<R<1). In this method R= 2/N

when, for example, a 200% declining balance is being used, and N equals the

depreciable life of an asset. The following relationships hold true for this method:

d1= B(R)

dk= B (1-R) k-1 (R)

Dk=B {1-(1-R) k}

BVk= B (1-R) k

BVN= B (1-R) N
 

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Dk = (B - S) k / N

BVk = B - Dk

N = depreciable life of the asset in years

B = unadjusted cost basis

dk = annual depreciation deduction in the kth year (1< k < N)

BVk = book value at end of year k

S = salvage value at the end of depreciable life of the asset taken as the minimum bid

Dk = cumulative depreciation through year k

K = Age of property
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The knowledge of engineering valuation is essential in the training as well as practice of

engineering. Engineering valuation is very important in the engineering activities in the

sense that it is an essential tool for making financial decisions and right choices for

engineering assets which may arise during practice. Engineering valuation also helps to

keep abreast changing technology and dynamic economy, which assist in how best to

channel resources for effective production. It also aids the engineer to keep tab of

machines value and to estimate future worth of assets in case of disposal.


‘  ‘

Engineering Valuation, as thought in Obafemi Awolowo University, should be included

into other engineering tertiary institution curriculum. This would empower engineering

students with entrepreneurial skills; the opportunity to fully contribute to the nations

economy.

‘ ‘ ‘ ‘ ‘
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‘ ‘ ‘  ‘

Adewunmi I.K. (2008), Unpublished Lecture Note, CVE 410 Engineering valuations

Obafemi Awolowo University, Ile-Ife.

Koya I.O. (2008), Unpublished Lecture Note, CVE 410 Engineering Valuation,

Obafemi Awolowo University, Ile-Ife.