Asset Market Prices of Our Property Investment
When the asset market prices are not available to the company, other information must be taken into account as:
- The current prices in an active market for properties of different by their nature, their condition or location. These prices will be adjusted to take account of their difference from the building concerned.
- The recent prices of similar goods less active markets, adjusted to take into account the economic risks arising from the determination of these prices.
- Updated projections of future cash flows based on reliable estimates based on the terms of leases and other existing contracts and to the extent possible, on external evidence such as the current housing market demand for similar properties with the same location and same condition. The discount rate used must reflect current market assessments of the uncertainty regarding the amount and timing of cash flows.
- Finally, there is also another method called “cost method”, which establishes the evaluation of an investment property by reference to the cost of constructing a building equivalent.
Among these valuation models, that of updating the “Cashflows” the future is more delicate. Indeed, other models are based on the evaluation of existing buildings identical or similar. Under the model of “Cashflows” future, the firm has any reference on which to rely in order to estimate its building. The indicators that take into account should be accurate and justified, such as discount rates, future cash flows, the number of years considered. Damodaran’s model (see example in the “Financial Tools” section of this site) can be applied to the valuation of investment properties. This model involves valuing a business (or property generating cash flow) from an update of future cash flows. The company leases a building can easily determine its future cash flows (see ยง 5-Case study, this chapter).
Changes in fair value of an investment property that generated the profits or losses must be included in net profit for the year in which they occurred. Under the principle of non-compensation, it is not possible to offset losses and gains from various investment properties in the income statement.
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Tags: Asset Market Prices, properties, Property Investment, various investment
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