Valuation MCQ Quiz - Objective Question with Answer for Valuation - Download Free PDF

Explanation:

Rent statements are a type of document that lets the tenant know how much money they owe for rent and when it must be paid by.

A rent agreement must always be prepared in between the landlord and tenant in case both parties are different. However, in special circumstances if both landlord and tenant are same then rent agreement may be avoided.

Among the given options, the last given option, the residential building is owned by government i.e. government is the owner and later on it is converted to field office or data collection  by government so tenant is also some department of government, so there is no need for rent statement.

In the three-envelope system of tendering, the process is structured as follows:

1. First Envelope – Pre-qualification Envelope / Eligibility Criteria Documents

Contains documents that prove the eligibility of the bidder such as:

•   Registration certificates
•   Experience certificates
•   Financial stability documents
•   PAN, GST, and other statutory registrations
•  Affidavits and declarations

   This is opened first to screen out bidders who don’t qualify to proceed.

2. Second Envelope – Technical Bid

    Includes technical specifications, construction methodology, work plan, machinery details, manpower availability, etc.
   Opened only for those who qualify the first envelope.

3. Third Envelope – Financial Bid

    Contains the actual quoted prices or rates for executing the work.
    Opened only for technically qualified bidders

Some important definitions in valuation:

1. Market value: Value of a property in open market and it depends upon time.
2. Book value: It is the amount shown in the account book after allowing necessary depreciations.

• Book value = Original cost – Depreciation

3. Obsolescence: the value of any structure becomes less by it becoming out of date style, structural design etc termed as obsolescence.
4. Scrap value: It is the value of dismantled materials for a building when its life is over. Scrap value of a building may be about 10% of its total cost of construction.
5. Salvage value: It is the value at the end of the utility period without being dismantled. It may be zero, positive and negative.
6. Distress value: Some time due to fear of war or riot the value of a property cannot fetch full market value. Then this value of property is called distress value.

Concepts:

The straight-line method of depreciation assumes a constant rate of depreciation. It calculates how much a specific asset depreciates in one year, and then depreciates the asset by that amount every year after that.

To calculate the straight-line depreciation rate for your asset, simply subtract the salvage value from the asset cost to get total depreciation, and then divide that by useful life to get annual depreciation:

Annual depreciation = (purchase price - salvage value) / useful life

Calculation:

Cost of Construction of building i.e. Purchase Value = Rs. 50, 000/-

Salvage Value = 10 % of Purchase Value = Rs. 5,000/-

Design life of building = 50 Years

Annual Depreciation = (50,000-5,000)/50

⇒ Annual Depreciation = Rs. 900 /year

According to straight-line depreciation method, the building will depreciate Rs. 900  every year.

Total Depreciation at the end of 30 years = Rs. 900 × 30 = Rs. 27,000/-

Present Value at the end of 30 years = {Purchase Value} – {Total Depreciation at the end of 30 years}

= Rs. 50,000 – Rs. 27000

= Rs. 23,000/- Ans.

Explanation:

Center Line Method:

• In this particular method length of the centerline of the wall is firstly calculated, then its length is multiplied with breadth and height to get the total quantity.
• This method gives very quick and accurate results.
• Suitable for Rectangular, circular, hexagonal, octagonal shapes of building estimation.
• No deductions will be made for corners while using the centerline method.

Additional Information

Separate wall method:

• Length of the external wall in longitudinal direction and length of internal wall running in the transverse direction are evaluated then after quantity will be calculated by multiplying length x breadth x height.
• In the longitudinal direction, wall length is normally reduced from earthwork to brickwork in the case of the superstructure.

Formulas used are:

Length of longwall (out to out) = center to centre length + half breadth on one side + half breadth on the other side = centre to centre length + one breadth

Length of the short wall (in to in) = centre to centre length – one breadth

Long wall - short wall method:

This method defines, the wall along the room length is considered as longwall and the wall perpendicular to longwall is considered as the short wall.

Formulas used are:

Concept:

Year’s purchase is defined as the capital sum required to be invested in order to receive an annuity of Re 1.00 at a certain rate of interest.

Sinking Coefficient = \(\rm{S=\frac{i_s}{(1+{i_s})^n-1}} \) 

Year’s purchase = \(\frac{{1}}{{{\bf{i}} + {\bf{s}}}}\) (Put i and s in decimals)

Where,

is = interest rate of sinking fund, i = rate of interest and S = Sinking fund coefficient

Calculation:

i_s = 0.03

Sinking Coefficient (s) = \(\rm{S=\frac{i_s}{(1+{i_s})^n-1}} \rm{=\frac{0.03}{(1+0.03)^{30}-1}} =0.021\)

i = 0.05

Year's Purchase = \(\rm{\frac{1}{i+s}=\frac{1}{0.05+0.021}}\)= 14.08 ≈ 14

Concept:

1. Straight line method: This assumes that the loss in the value of the property is same every year and at the end of its useful life it is equal to its scrap value.

\({\rm{Annual\;Depreciation}} = \frac{{{\rm{Purchasing\;cost}} - {\rm{salvage\;value}}}}{{{\rm{life\;of\;machine}}}}\)

2. Constant percentage method: This assumes that thew property loses it value by a constant percentage of its value at the begining of each year. (n = life of machine)

\(Annual{\rm{ }}\;Depreciation = 1 - {\left( {\frac{{Scrap{\rm{ }}value}}{{original{\rm{ }}cost}}} \right)^{\frac{1}{n}}}\)

Calculation:

Given,

Fixed cost (FC) or purchasing Cost = Rs. 2,00,000

Scrap Value (SV) = Rs. 50,000

Life of Machine, n = 5 Years

Total depreciation = FC - SV

= 2,00,000 - 50,000

= Rs. 1,50,000/-

Depreciation per year = \(\frac{{{\rm{Total\;Depreciation}}}}{{{\rm{Deign\;life}}}}\)

= \(\frac{{{\rm{\;}}1,50,000}}{5}\)

= Rs. 30,000

For Straight line method, depreciation method annual depreciation rate (K) is given by the following formula:

\({\rm{K}} = \frac{{{\rm{Depreciation\;per\;year}}}}{{{\rm{total\;depreciation}}}}\)

K = \(\frac{{30,000}}{{150000}}\) = 0.2

Hence, depreciation and total depreciation will be 0.2 and Rs. 1,50,000 respectively.

Different types of area are as follows:

Floor area: 

The floor area of the building is the total area of the floor in between walls and consists of the floor of all rooms verandas, corridors, etc. The floor area is equal to the plinth area minus area occupied by walls.

Following are not included in the floor area of the building:

1. Sills of doors and openings are not included in the floor area of the building.

2. Area occupied by walls, pillars, and any other intermediate support.

Plinth area: 

It is the covered built-up area measured at the floor level of any storey or at the floor level of the basement.

The plinth area is also called a built-up area and is the entire area occupied by the building including internal and external walls. It is generally 10-20% more than the carpet area.

Carpet area: 

It is a useful area or liveable area or lettable area.

It is the total floor area minus the circulation area, verandahs, corridors, passages, staircase, lifts, entrance hall, etc., and minus other non-useable areas as sanitary accommodations, air conditioning room, etc.

Circulation area:

1. Vertical circulation area of the building is the area or space occupied by staircases, lifts, and the entrance halls adjacent to them which are required for the vertical movement of the users of the building.

It may be taken as (4 to 5) % of the plinth area of the building.

2. Horizontal circulation area of a building in the area of the verandahs, passages, corridors, balconies, porches, etc. which is required for the horizontal movement of the users of the building.

It may be taken as (10 to 15)% of the plinth area of the building.

Explanation:

Corrugated sheet surfaces and Nainital pattern roof surfaces shalt be included with plain surfaces after increasing their areas by the following percentages:

a) Corrugated  steel sheets - 14 percent

b) Nainital pattern roof ( plain sheets with rolls) - 10 percent

c) Nainital pattern roof with corrugated sheets - 25 percent

d) Asbestos cement sheets, corrugated - 20 percent

e) Asbestos cement sheets, semi-corrugated - 10 percent

Concepts:

The straight-line method of depreciation assumes a constant rate of depreciation. It calculates how much a specific asset depreciates in one year, and then depreciates the asset by that amount every year after that.

To calculate the straight-line depreciation rate for your asset, simply subtract the salvage value from the asset cost to get total depreciation, and then divide that by useful life to get annual depreciation:

Annual depreciation = (purchase price - salvage value) / useful life

Calculation:

Cost of Construction of building i.e. Purchase Value = Rs. 50, 000/-

Salvage Value = 10 % of Purchase Value = Rs. 5,000/-

Design life of building = 50 Years

Annual Depreciation = (50,000-5,000)/50

⇒ Annual Depreciation = Rs. 900 /year

According to straight-line depreciation method, the building will depreciate Rs. 900  every year.

Total Depreciation at the end of 30 years = Rs. 900 × 30 = Rs. 27,000/-

Present Value at the end of 30 years = {Purchase Value} – {Total Depreciation at the end of 30 years}

= Rs. 50,000 – Rs. 27000

= Rs. 23,000/- Ans.

Concept:

Annual sinking fund (I) is given by:

\(I = \;\frac{{Si}}{{{{\left( {1 + i} \right)}^n} - 1}}\)

Where,

S = total amount of sinking fund to be accumulated

i = rate of interest

n = number of years required to accumulate the sinking fund

Calculation:

S = Cost - Scrap Value = 25000 - 3000 = 22000

n = 40 years

r = 5%

\(\rm{I = \;\frac{{22000 \times 0.05}}{{{{\left( {1 + 0.05} \right)}^{40}} - 1}} = 182.11}\)

∴ The annual sinking fund is Rs. 182/-

Concept:

In the Straight line method, it is assumed that the property loses its value by the same amount every year. A fixed amount of the original cost is deducted every year so that at the end of the utility period only the scrap value is left

Annual Depreciation is given by:

\(D = \frac{{Original\;cost\; - Scrap\;value}}{{life\;in\;years}} = \frac{{C - S}}{n}\)

Where, D = Annual Depreciation, S = Scrap value & n = life of the property in years

Calculation:

n = 10 years

S = Rs.50,000

C = Rs. 10,00,000

\(D = \frac{{1000000 - 50000}}{{10}} = Rs.95000\;per\;year\)

So At the end of 5 years, 

Book value of the property = Original cost - 5 × D

 = 1000000 – 5 × 95000

 = Rs. 525000.

Concept:

Sinking Fund Method:

It is a technique for depreciating an asset while generating enough money to replace it at the end of its useful life. The sinking Fund coefficient(S) for n years is given below the formula

\(S = {i \over {(1+i_s)^n-1}}\)

Where i_s = interest rate of sinking fund, i = rate of interest, and S = Sinking fund coefficient

Year's Purchase(YP):

It is defined as the capital sum required to be invested in order to receive an annuity of Re 1.00 at a certain rate of interest.

\(YP = {1 \over (i+S)}\)

Where  i = rate of interest, and S = Sinking fund coefficient

Calculation:

Given Data

Rate of interest(I) = 7% = 0.07

Coefficient of annual sinking fund(S) = 0.43

So, Year's Purchase(YP)

\(YP = {1 \over (i+S)} = {1 \over (0.07+0.43)} = {1 \over (0.50)}\) = 2

Concept:

Different types of areas are as follows:

Floor area: 

• The floor area of the building is the total area of the floor in between walls and consists of the floor of all rooms verandas, corridors, etc.
• The floor area is equal to the plinth area minus the area occupied by walls.

Following are not included in the floor area of the building:

• Sills of doors and openings are not included in the floor area of the building.
• Area occupied by walls, pillars, and any other intermediate support.

Plinth area: 

• It is the covered built-up area measured at the floor level of any storey or at the floor level of the basement.
• The plinth area is also called a built-up area and is the entire area occupied by the building including internal and external walls. It is generally 10-20% more than the carpet area.

Carpet area: 

• It is a useful area or liveable area or lettable area.
• It is the total floor area minus the circulation area, verandahs, corridors, passages, staircase, lifts, entrance hall, etc., and minus other non-useable areas as sanitary accommodations, air conditioning room, etc.

Circulation area:

1. Vertical circulation area of the building is the area or space occupied by staircases, lifts, and the entrance halls adjacent to them which are required for the vertical movement of the users of the building.

It may be taken as (4 to 5) % of the plinth area of the building.

2. Horizontal circulation area of a building in the area of the verandahs, passages, corridors, balconies, porches, etc. which is required for the horizontal movement of the users of the building.

It may be taken as (10 to 15)% of the plinth area of the building.

Explanation:

The leaseholder is known as the lessee and holds the physical possession of the property for a definite period under terms and condition specified in the lease document.
Other forms of the lease are as follows:

Building Lease: In this type of lease, the owner of a freehold open plot of land let out his land to the lessee on an agreed amount of premium or ground rent or a combination of both.

The leaseholder may then erect a building over there up to a specified amount and within a specified time and he maintains the property and can reside or earn income through such property.

Occupational Lease: In this type, the lease is granted against premium or rent or a combination of the two by an owner of property consisting of land and building or other structures for occupancy for a fixed period to another person.

Sublease – A leaseholder may render sub-lease of his leasehold property to other persons subject to the terms and conditions in the original lease and be allowed by Local regulations or Court of Law.

Perpetual Lease – When the lease of a property is given for a number of years providing a condition that lease is renewable time to time, even for endless time according to the desire of the leaseholder.

When a lease is granted for a period of 99 years, it is known as long term lease and when it is for 999 years it is said to be perpetuity or for an endless duration.

A short-term lease generally refers to a lease with a duration of fewer than six months. Often, they are based on a month-to-month rental agreement, which may or may not is renewed at the end of each month.