SAEE SAEE - International Valuation Standards Questions and Answers 4 — Questions and Answers
Question 1: IVS 300 addresses the valuation of plant and equipment. Under IVS, which basis of value is most commonly used when plant and equipment is valued for financial reporting purposes as a going concern?
- Market value in continued use (Correct answer)
- Liquidation value
- Salvage value
- Replacement cost new
Correct answer: Market value in continued use
For financial reporting of plant and equipment as a going concern, market value in continued use reflects the asset's contribution to the entity's operations.
Question 2: Under IVS 400, which of the following approaches is most commonly used to value real property interests for investment purposes?
- Income Approach using discounted cash flow or direct capitalization (Correct answer)
- Cost Approach using depreciated replacement cost
- Market Approach using guideline public company method
- Asset-based approach using net asset value
Correct answer: Income Approach using discounted cash flow or direct capitalization
Investment real property is primarily valued using the Income Approach, which captures the present value of future cash flows from rent or lease income.
Question 3: IVS distinguishes between 'valuation assumptions' and 'special assumptions.' A special assumption is one that:
- Assumes facts that differ from those existing at the valuation date (Correct answer)
- Is required by law or regulation
- Assumes the asset will be sold in an open market
- Is agreed upon by both buyer and seller
Correct answer: Assumes facts that differ from those existing at the valuation date
A special assumption posits a hypothetical scenario or counterfactual condition that does not exist at the valuation date, such as assuming planning permission has been granted.
Question 4: According to IVS 500, which of the following is the primary basis of value used when valuing financial instruments for financial reporting under IFRS?
- Fair value (Correct answer)
- Investment value
- Equitable value
- Liquidation value
Correct answer: Fair value
IVS 500 aligns with IFRS requirements, where financial instruments are typically measured at fair value for financial reporting purposes.
Question 5: Under IVS, 'depreciated replacement cost' (DRC) is a method within the Cost Approach typically used when:
- No reliable market or income data exists for the asset being valued (Correct answer)
- The asset has an active secondary market with frequent transactions
- The asset generates stable, predictable cash flows
- The asset is a listed equity security
Correct answer: No reliable market or income data exists for the asset being valued
DRC is used as a last resort for specialized assets where market evidence or income streams are insufficient to support other approaches.
Question 6: IVS requires valuers to consider all three valuation approaches and select the most appropriate. If a valuer relies on only one approach, IVS requires that:
- The report must explain why the other approaches were not used (Correct answer)
- The client must provide written consent to use only one approach
- The regulatory body must pre-approve the single-approach methodology
- The valuer must use the cost approach as the primary method by default
Correct answer: The report must explain why the other approaches were not used
IVS mandates that the report justify the exclusion or limited use of the other two approaches through explanation of why they are not applicable or reliable.
Question 7: Under IVS 200, which of the following is specifically addressed as a unique consideration when valuing businesses and business interests compared to real property?
- The distinction between enterprise value and equity value (Correct answer)
- The use of the gross rent multiplier
- The application of the extraction method
- The calculation of effective gross income
Correct answer: The distinction between enterprise value and equity value
Business valuation under IVS 200 requires explicit consideration of whether value conclusion represents enterprise (total firm) value or equity value attributable to shareholders.
SAEE SAEE - International Valuation Standards Questions and Answers 4
IVS 300 addresses the valuation of plant and equipment.
Under IVS, which basis of value is most commonly used when plant and equipment is valued for financial reporting purposes as a going concern?