CASE STUDIES - Council Of Engineers And Valuers2018/11/29 · CASE STUDIES PREPARED BY: Mr. Vimal K. Shah (9426159641) [email protected] Mrs. Kavvita N.Choksi (9512333666) [email protected]

CASE STUDIES

PREPARED BY:

Mr. Vimal K. Shah

(9426159641)

[email protected]

Mrs. Kavvita N.Choksi

(9512333666)

[email protected]

Example :

It is a load bearing structure. Age is 8 years. Life is 60 years.

i) What is the percentage depreciation by straight line method

assuming a salvage value of 10%.

ii) What is the depreciation by constant percentage method if

the depreciation rate is1.5%.

Exercise 2 :

It is a load bearing structure of 20 years old. Plinth area :

1275 sq.ft.. Replacement rate = Rs. 1,650/sq.ft. What is the

depreciated value of the building (Life : 60 years, salvage

value = 10%) by adopting straight line method?

Plinth area = 1,275 sq.ft.

Replacement rate = Rs. 1,650/sq.ft.

Replacement value = Rs. 21,03,750/-

Age of the building = 20 Years

Life of the building = 60 years

Salvage value = 10%

Depreciation percentage =20 x (100 - 10) = 30%

60

Depreciated value or = 0.7 x 21,03,720

(Net Present Value) = Rs. 14,72,625/-

Exercise 3 :

The built up area of a GF building is 5,000 sq.ft. and the

carpet area is 4,000 sq.ft. Plot size is 10,000 sq.ft. What is

the FSI?What is plot coverage?

FSI =

Plot coverage =

Exercise 4 :

A building of 8,000 sq.ft (GF & FF - 4,000 sq.ft each) is

existing in a plot of 8,000 sq.ft.

What is the plot coverage?

Exercise 5 :

20 years factory building of 5,000 sq.ft. is situated in 1 acre of industrial land.

The unit replacement rate of building is Rs. 1,000/-. Assuming the life as 40

years and a salvage value of 30%, find the depreciated value and salvage value of

the building.



Replacement value = Rs. 50,00,000

Age of the building = 20 years

Life assumed = 40 years

Salvage value assumed = 30%

Depreciation percentage = 20/40 x (100 - 30) = 35%

Depreciated value = 0.65 x 50,00,000 = Rs. 32,50,000

Salvage value = 0.3 x 50,00,000 = Rs. 15,00,000

Exercise 6 :

Building area = 1,200 m2 ; Age = 25 years ; Life = 50 years ; Salvage value =

Nil ; Plot area= 2,000 m2 ; Land rate = Rs. 8,000/m2 ; Replacement cost of

building = Rs. 25,000/m2

What is the value?

Land value = 2,000 x 8,000 = Rs. 1,60,00,000

Depreciation percentage = 25/50 x 100 = 50%

Depreciated value of the building = 1,200x25,000x0.5

= Rs. 1,50,00,000

Total value = Rs. 3,10,00,000

Exercise 7 :

The plinth area of a RCC roofed load bearing residential building (16 years old)

is1,000 sq.ft.The life of the building as 60 years and a salvage value of 10%,

Questions :

1) Calculate the depreciated value if the unit replacement cost is Rs. 1,800/-.

2) For the above building, if the age of the first floor is 10 years, what will be the

depreciated value of first floor of built up area 1,200 sq.ft. assuming the unit

rate of construction as Rs. 1,400/-.

Data :

Type of structure = Load bearing


Life = 60 years


Salvage value = 10%

Calculations :

GF



Replacement value = Rs. 18,00,000

Age = 16 years

Life = 60 years

Salvage value = 10%

Depreciation percentage = 16/60 x 90

= 24%

Depreciated value = 0.76 x 18,00,000

= Rs. 13,68,000/- (1)

FF


Age = 10 years

Life = 60 Years

Depreciation (as of GF) = 24%


Replacement value = 1,200 x 1,400

= 16,80,000


= Rs. 12,76,800/- (2)

Answers :

1) Rs. 13,68,000/- 2) Rs. 12,76,800/-

Exercise 8 :

A RCC framed structure building consists of front portion (1,500 sq.ft. - 24

years age) and rear portion (1,200 sq.ft. - 16 years). The replacement unit rate

of construction is Rs. 1,600 per sq.ft. Life 80 years. Salvage value - 10%.

Questions :

1) What is the depreciated value of rear portion?

2) What is the depreciated value of the front portion?

Data :

Number of portion = 2

Type of structure = RCC framed

Area of front portion = 1,500 sq.ft.

Age of front portion = 24 years

Area of rear portion = 1,200 sq.ft.

Age of rear portion = 16 years

Replacement rate of construction = Rs. 1,600/sq.ft.

Life = 80 years

Salvage value = 10%

Calculations :

Rear portion :

Plinth area of rear portion = 1,200 sq.ft.



= Rs. 19,20,000





= 18%

Depreciation value = 0.18 x 19,20,000

=Rs. 3,45,600

Depreciated value = 19,20,000 - 3,45,600

= Rs. 15,74,400/-

Front portion :

Plinth area of front portion = 1,500 sq.ft.



= Rs. 24,00,000

Age = 24 years

Life = 80 years

Salvage = 10%

Depreciation = 24/80 x 90

= 27%


= Rs. 6,48,000


= Rs. 17,52,000/- (2)

Answers :

1) Rs. 15,74,400/- 2) Rs. 17,52,000/-

Exercise 9 :

It is a residential building of GF & FF. The age of GF is 16 years and FF is 8

years. Plinth area of each floor is 1,200 sq.ft. Replacement unit rate of GF & FF

is Rs. 1,600 & 1,200 respectively. Assume life as 60 years and salvage value as

10%.

Questions :

1. What is the depreciated value of GF?

2. What is the depreciated value of FF?

Data :

Number of floors = GF & FF

Plinth area of ground floor = 1,200 sq.ft.

Age of ground floor = 16 years

Replacement rate of ground floor = Rs. 1,600/-

Plinth area of first floor = 1,200 sq.ft.

Age of first floor = 8 years

Replacement rate of first floor = Rs. 1,200/-

Life = 60 years

Salvage value = 10%

GF FF

Plinth area = 1,200 sq.ft. 1,200 sq.ft.

Replacement rate = Rs.1,600/sq.ft. Rs.1,200/sq.ft.

Replacement value = Rs.19,20,000 Rs.14,40,000

Age = 16 years 8 years

Life = 60 years 60 years

Salvage = 10% 10%

Depreciation =16 x 90 = 24% 8x 90 = 12%

60 60

But, 24% is adopted

Depreciation value = 19,20,000 x 0.24 14,40,000 x 0.24

Rs. 4,60,800 Rs. 3,45,600

Depreciated value = Rs. 14,59,200/- Rs. 10,94,400/-

Answers :

1) Rs. 14,59,200/- 2) Rs. 10,94,400/-

Exercise 10 :

A load bearing building (1,500 sq.ft.) of 20 years old is existing in a plot of

2,400 sq.ft. The unit land rate of plot is Rs. 2,000 and replacement unit rate of

construction is Rs. 1,700 sq.ft. It is a collateral security. Salvage value = 10%.

Questions :

1) Determine the market value?

2) Determine the forced value (assume a reduction factor as 15%)?

Data :



Age = 20 years

Plot area = 2,400 sq.ft.

Land rate = Rs. 2,000/-


Salvage value = 10%

Purpose = Collateral security to bank

Calculations :

Land value = 2,400 x 2,000

= Rs. 48,00,000

Building area = 1,500 sq.ft.




Salvage value = 10%


= 30%

Depreciated value of building = 0.7 x 1,500 x 1,700

= Rs. 17,85,000

Total market value = Rs. 65,85,000/- (1)

48,00,000 + 17,85,000

Forced sale value 0.85x65,85,000= Rs. 55,97,250/- (2)

Answers :

1) Rs. 65,85,000/- 2) Rs. 55,97,250/-

Exercise 11 :

Plinth area is 1,000 sq.ft. Replacement rate of construction is Rs. 2,000/sq.ft.

Age is20 years. Life is 60 years. Salvage value 10%.

Questions :

1) What is replacement value?

2) What is depreciation percentage by straight line method?

3) What is the net present value?

4) What is the depreciation percentage by constant percentage method

assuming a rate of depreciation as 1.5%.

5) What is the balance economic life?

Data :





Salvage value = 10%



Replacement value = Rs. 20,00,000/- (1)


Life of the building = 60 Years Salvage value = 10%

Depreciation = (20/60) x 90

= 30% (2)


= 6,00,000

Net present value = 20,00,000 - 6,00,000

= Rs. 14,00,000/- (3)

Depreciation percentage = 1 - ( 1 – r/100 )n

by constant %age method = 1 - ( 1 - 1.5/100 )20

= 1 - (0.985)20

Depreciation factor = 0.26087

Depreciation percentage = 0.26087 x 100

= 26.09% (4)

Balance economic life = 60 - 20

= 40 Years (5)

Answers :

1) Rs. 20,00,000/- 3) Rs. 14,00,000/- 5) 40 Years

2) 30% 4) 26.09%

Exercise 12 :

Ground floor of a residential bungalow was constructed in

1985 at a cost of Rs. 3,50,000.First floor was constructed in

1990 at the cost of Rs. 6,00,000/-. Work out Replacement

cost of bungalow for the year 2003 by Book value method.

The building cost multiplier factor with 1960 as base year for

year 1985, 1990 and 2003 were 14.16, 27.08 and 87.50

respectively.

Questions :

1. What is the Replacement cost of ground floor by book value method?

2. What is the Replacement cost of first floor by book value method?

3. What is the Total replacement cost of the building by book value method?

Data :

Year of construction of GF = 1985

Cost invested for GF = Rs. 3,50,000/-

Year of construction of FF = 1990

Cost invested for FF = Rs. 6,00,000/-

Cost multiplier factor (1960 as base = 14.16 year) for the year 1985



3. Total Replacement cost = 21,62,782 + 19,38,700

= Rs. 41,01,482/- (3)

Answers :

1. Rs. 21,62,782/-

2. Rs. 19,38,700/-

3. Rs. 41,01,482/-

Exercise 13 :

The ground floor of an RCC Frame residential building was constructed in

1978. The first floor of the building was constructed in 1992 and second floor

was in 2010. A major structural renovation took place in 2015. The areas of

ground floor, first floor and second floor are 1200 sq ft., 1200 sq. ft and 800 sq

ft respectively. The cost of construction of similar type of building in 2015 as

per CPWD Plinth Area Rare method is INR 1600 per sq ft. The Cost Index in

2018 is 114. The remaining economic life of the building in 2018 is another 65

years.

Questions :

1)What is the physical age of first floor as on date?

2)What is the effective age of the building?

3)What is the replacement value of the building in 2018?

4)What is the depreciation of the first floor in 2018?

5)What is the depreciated value of the building in 2018?

The year of construction of GF = 1978

The year of construction of FF = 1992

The year of construction of SF = 2010

Year of major renovation = 2015

Plinth area of GF = 1,200 sq.ft.

Plinth area of FF = 1,200 sq.ft.

Plinth area of SF = 800 sq.ft.


in 2015

Cost index in 2018 = Rs. 114/-

Remaining economic life as on = 65 years

2018


= Rs. 38,35,361/- (5)

Answers :

1) 40 years 4) 34.29%

2) 105 years 5) Rs. 38,35,361/-

3) Rs. 58,36,800/-

Exercise 14 :

There is a commercial building of GF + 2 in a busy commercial locality. GF

(2,000 sq.ft.) is a load bearing structure of age 40 years. The economic life can

be assumed as 60 years with a salvage value of 10%. The FF (2,200 sq.ft.) & SF

(2,200 sq.ft.) is a framed structure of age 20 years which rest on independent

separate foundation. The economic life of this new structure can be assumed as

80 years. The replacement cost of load bearing structure is Rs. 1,600/sq.ft. and

the average replacement cost of FF & SF is Rs. 1,800/sq.ft. The external

services is 10% for all the floors. The plot area is 4,000 sq.ft. and the prevalent

rate of land is Rs. 5,000/sq.ft. Salvage value for FF is 10%.

Data :


Rate for land = Rs. 5,000/sq.ft.


Age of GF = 40 years


Economic life = 60 years

Replacement cost = Rs. 1,600/-

External service = 10%

Plinth area of FF & SF = 2,200 sq.ft. & 2,200 sq.ft.

Age of FF & SF = 20 years

Economic life of FF & SF = 80 years

Type of structure = RCC framed with independent foundation

Replacement rate = Rs. 1,800/-

External services = 10%

FF & SF

Built up area of first floor = 2,200 sq.ft.

Built up area of second floor = 2,200 sq.ft.

Total built up area = 4,400 sq.ft.

Replacement rate = Rs. 1,800

Answers :

1) Rs. 2,00,00,000/- 4) Rs. 81,59,800/-

2) Rs. 14,08,000/- 5) Rs. 65,27,840/-

3) Rs. 67,51,800/- 6) Rs. 2,81,59,800/-

VALUATION BY LAND & BUILDING METHOD

Exercise 1 :

In 2008, Mr. X purchased a residential plot of 3,000 sq.ft. for Rs. 15,00,000/-.

In the year 2010, he constructed a residential building of GF for 1,500 sq.ft.

and in the year 2012, he constructed FF for 1,200 sq.ft. In 2018, a valuation

report is required. Replacement cost of GF is Rs. 2,000/sq.ft. and FF is

1,600/sq.ft. Prevailing market rate of plot is Rs. 2,000/sq.ft. and the guide line

rate is Rs. 2,500/sq.ft. Assume the life as 60 years and salvage value is 10%.

Questions :

1.What is the total replacement value of the building?

2.What is the total depreciation value of the entire building?

3.What is the total depreciated value of the entire building?

4.What is the prevailing market value of the plot?

5.What is the total value of the property as on date that can be certified?

6.What is the book value of the plot as on 2018?

Data :


Purchased cost of plot (2008) = Rs. 15,00,000/-

Area of building GF (2010) = 1,500 sq.ft.

Area of building FF (2012) = 1,200 sq.ft.

Replacement cost of building GF (2018) = Rs. 2,000/sq.ft.

Replacement cost of building FF (2018) = Rs. 1,600/sq.ft.

Prevailing market rate of plot = Rs. 2,000/sq.ft.

Guideline rate = Rs. 2,500/sq.ft.


Salvage value = 10%

Date of valuation = 2018

Calculations :

Value of GF

Plinth up area of Ground floor = 1,500 sq.ft.

Replacement rate of GF = Rs. 2,000/sq.ft.

Replacement value 1,500 x 2,000 = Rs. 30,00,000

Age 2018 - 2010 = 8 years

Life = 60 years

Salvage value = 10%

Depreciation percentage (8/60) x 90 = 12%

Depreciation value of GF = 0.12 x 30,00,000 = Rs. 3,60,000

Depreciated value of GF = 30,00,000 - 3,60,000 = Rs. 26,40,000/-

Total value of property

Value of Plot = Rs. 60,00,000

Value of Building = Rs. 43,29,600

Total value = Rs. 1,03,29,600/- (5)

Book value

Book value of plot = Rs. 15,00,000/- (6)

Answers :

1) Rs. 49,20,000/- 4) Rs. 60,00,000/-

2) Rs. 5,90,400/- 5) Rs. 1,03,29,600/-

3) Rs. 43,29,600/- 6) Rs. 15,00,000/-

Exercise 2 :

A doctor purchased a plot of 2,000 Sq.m. in a posh locality in a city in the year 1997 for

a price of Rs. 50,00,000/-. In the year 1998, he constructed a hospital having 500 Sq.m.

built up floor area at ground level and 200 Sq.m. built up area at first floor level at the

cost of Rs. 20,00,000/-. Prevalent replacement cost of similar hospital as on 2018 is Rs.

35,000 per Sq.m. Prevalent land price in the locality at present is Rs.80,000 per Sq.m.

Age of building is 20 years and the total life of the building is 60 years.

Questions :

1.What will be the depreciation amount of the hospital building by adopting straight

line method of depreciation and considering scrap value at 10% ?

2.What will be the depreciation amount of the hospital building by adopting constant

percentage method of depreciation?

3.What will be the total market value of the plot at present?

4.What will be the total market value of the hospital property for bank loan purpose?

5.What is the balance economic life of the building?

6Which of the following will not be considered for the estimation of present value of

building?

a) Age b) Area of the building

c) Replacement cost d) Land rate

Data :

Extent of plot = 2,000 sq.m.

Year of purchase of plot = 1997

Purchased amount = Rs. 50,00,000/-

Year of new construction = 1998

Built up area of the building GF = 500 sq.m.

Built up area of the building FF = 200 sq.m.

Cost of building GF + FF (500 + 200) = Rs. 20,00,000/-

Replacement rate of the building = Rs. 35,000/sq.m.

Prevalent land rate = Rs. 80,000/sq.m.




Exercise 3 :

In the year 2000, a plot of 4,800 sq.ft. was purchased by Mr. X for Rs.

4,80,000/-. In 2008, he constructed GF for an area of 1,400 sq.ft. In 2015, he

constructed FF for an area of 1,200 sq.ft. It is a load bearing structure. The

replacement rate of construction of GF & FF is Rs. 1,800 & Rs. 1,500

respectively. The guideline (circle) rate of plot is Rs. 1,540/sq.ft.and the

prevailing market rate is Rs. 1,000/sq.ft. Assume a salvage value 10%, Date of

valuation is 2018.

The questions are :

1.What is the land value in 2018?

2.What is he depreciated value of GF?

3.What is the depreciated value of FF?

4.What is the market value of the property assuming it is a marketable property?

5. What is the forced sale value of the property, assuming a reduction factor of

15%?

6.What is the book value of the plot in 2018?

Data :


Purchased cost (2000) = Rs. 4,80,000/-

Area of GF (2008) = 1,400 sq.ft.

Area of FF (2015) = 1,200 sq.ft.


Replacement rate of GF = Rs. 1,800/sq.ft.

Replacement rate of FF = Rs. 1,500/sq.ft.

Circle rate of plot = Rs. 1,540/sq.ft.

Market rate of plot = Rs. 1,000/-


Date of valuation = 2018

calculation

Forced sale value 0.85 x 84,72,000 = Rs. 72,01,200/- (5)

Book value of the plot in 2018 = Rs. 4,80,000/- (6)

Answers :

1. Rs. 48,00,000/- 4. Rs. 84,72,000/-

2. Rs. 21,42,000/- 5. Rs. 72,01,200/-

3. Rs. 15,30,000/- 6. Rs. 4,80,000/-

Exercise 4 :

A business man purchased a plot of 1000 Sq.mt. in a posh locality of a city in

the year 1987 for a price of Rs. 30,00,000. In the year 1988, he constructed a

residential bungalow having 300 Sq.mt. built up floor area at ground level and

100 sq.mt. built up area at first floor level at the cost of Rs. 14,00,000.

Prevalent replacement cost of similar bungalow as on today is Rs. 30,000 per

sq.mt. Prevalent land price in the locality at present is Rs. 60,000 per sq.mt.

Age of building is 30 years and the total life of the building is 60 years.

Questions :

1. What will be the depreciation amount of the bungalow by adopting straight line

method of depreciation and considering scrap value at 10 % ?

2. What will be the depreciation amount of the bungalow by adopting constant

percentage method of depreciation?

3. What will be the market value of the land at present?

4. What will be the total market value of the bungalow property for the bank loan

purpose?

5. What is the balance economic life of the building?

6. Which of the following will not be considered for the estimation of present

market value of above property?

Data :

Extent of plot = 1,000 sq.m.

Year of purchase of plot = 1987

Purchased amount = Rs. 30,00,000/-

Year of new construction = 1988

Built up area of the building GF = 300 sq.m.

Built up area of the building FF = 100 sq.m.

Cost of building GF + FF (300 + 100) = Rs. 14,00,000/-

Replacement cost = Rs. 30,000/sq.m.





Calculations

4. Land value - 1,000 x 60,000 = 6,00,00,000

Depreciated value of the building = 0.55 x 1,20,00,000

= Rs. 66,00,000

Total value - Land + building = Rs. 6,66,00,000/- (4)

5. Total economic life of building = 60 years


Balance economic life 60 - 30 = 30 years (5)

6. While estimating the present market value of the property,

1. Depreciation is to be considered.

2. Replacement cost is to be considered.

3. Current land rate is to be considered.

Economic obsolescence need not be considered. (6)

Exercise 5 :

Twenty years back, Mr. X purchased a plot of 3,000 sq.ft. for 4 lakhs. In this

plot, he constructed a residential building of 1,000 sq.ft. 16 years back. The

replacement rate of construction including services today is 1,800/sq.ft.

Assume the life as 80 years and salvage value as 10%. The prevalent rate of plot

as Rs. 1,500/sq.ft.

Questions :

1)What is the value of the property (Land + building) as on date?

2) What is the depreciation amount for the building as on date? (by adopting

straight line method)

3)What is the forced sale value of the property assuming 15% as the reduction

factor?

4)What is the auction value of the property assuming 30% as the reduction factor?

5)What will be the upset price if the bank fixes 10% as the reduction factor?

6)What is the cost of the plot for balance sheet purpose?

Data :

Plot (3,000) purchased cost = Rs. 4,00,000

Plinth area of building = 1,000 sq.ft.


Replacement rate of building = Rs. 1,800/sq.ft.

Life = 80 years

Salvage value = 10%

Prevalent land rate = Rs. 1,500/sq.ft.

Value of the property = Rs. 59,76,000

Auction value = 0.7 x 59,76,000 = Rs. 41,83,200/- (4)

Auction value certified by the valuer = Rs. 41,83,200

Less 10% = (-) 4,18,320

Upset price fixed by the bank = Rs. 37,64,880/- (5)

The purchased amount of plot will be the cost for balance sheet purpose.

Cost is Rs. 4,00,000/-.

Exercise 6 :

A load bearing building having 1,000 sq.m. built-up floor area is constructed in

the year 1992. Total area of the plot is 5,000 sq.m. Replacement cost of

building in March 2012 is Rs. 7,500/sq.m. Prevalent Land rate is Rs.

1,200/sq.m. in the locality.

Questions :

1.What is the value of the plot?

2.What is the replacement value of building?

3. What is the depreciation percentage by adopting straight line method assuming

the life as 60 years and salvage value as 10%?

4.What is the depreciation value?

5.What is the depreciated value?

6.What is the total value?

Data :

Building type = RCC roofed load bearing

Builtup area of the building = 1,000 sq.m.

Year of construction = 1992

Replacement cost of building 2012 = Rs. 7,500/sq.m.

Plot area = 5,000 sq.m.


Value to be calculated as on = 2012

Calculations :



Land value = 5,000 x 1,200 = Rs. 60,00,000/- (1)

Exercise :

A residential load bearing structure having 280 sq.m. built-up floor area is

constructed in1961 at Delhi. Area of plot is 650 sq.m. Calculate value of property as

on 01.04.1981, if prevalent land rate in 1981 in that locality was Rs. 800 per sq.m.

Cost index for Delhi in1981 was 176 with base year 01.10.1976 as 100. Rate for

bungalow in 1976 was Rs. 325/sq.m. Plumbing cost/unit was Rs. 6,000 and

electrification cost was Rs. 5,700/unit as perC.P.W.D. memorandum of 01.10.1976.

Life is 60 years & salvage value is 10%.

Questions :

1.What is the value of the plot as on 1981?

2.What is the replacement value of the building as on 1981?

3.What is the depreciation percentage by adopting straight line method assuming life

as 60 years & salvage value as 10%?

4.What is the depreciation value as on 1981?

5.What is the Net present value of the building?

6.What is the total value of the property as on 1981?

Data :

Structure = Load bearing

Builtup area = 280 sq.m.


Place = Delhi

Area of plot = 650 sq.m.

Land rate prevailing (1981) = Rs. 800/sq.m.

Cost index for Delhi with base = 100

year 01.10.1976

Cost index for Delhi (1981) = 176

Rate of bungalow 1976 = Rs. 325/sq.m.

Plumbing cost/unit = Rs. 6,000/unit

Electrification = Rs. 5,700/unit

Exercise 8 :

A bungalow having G + 2 upper floor is for sale. Area of plot is 500 sq.m.

Ground floor having 200 sq.m. built-up area was built in 1975. 1st and 2nd

floor having total 300 sq.m. built-up area were raised in 1995. Prevalent land

rate in locality, in 2012, is Rs. 46,000/sq.m. and replacement cost is Rs.

18,000/- per sq.m. Date of valuation is 2012.

Questions :

1. What is the value of the plot as on 2012?

2. What is the replacement value of the building?

3. What is the depreciation percentage that can be adopted for entire building by

adopting straight line method assuming life as 60 years and salvage value as

10%?

4. What is the depreciation value of the building?

5. What is the Net present value of the building?

6. What is the total value that can be certified for the entire property?

Data :

Area of plot = 500 sq.m.

Area of GF = 200 sq.m.

Year of construction of GF = 1975

Area of FF & SF = 300 sq.m.

Year of construction of FF & SF = 1995

Land rate in 2012 = Rs. 46,000/sq.m.

Replacement cost of building = Rs. 18,00,000/sq.m.

calculation

Present value of the property = Land value + Building value

= 2,30,00,000 + 40,05,000

= Rs. 2,70,05,000/- (6)

Answers :

1. Rs. 2,30,00,000/- 4. Rs. 49,95,000/-

2. Rs. 90,00,000/- 5. Rs. 40,05,000/-

3. 55.5% 6. Rs. 2,70,05,000/-

Exercise 9 :

An existing two storeyed framed structure stands on land measuring 2 grounds (1

ground = 2,400 sq.ft.). The ground floor and first floor each has an area of 1,000 sq.ft.

The ground floor was constructed 20 years ago and the first floor 12 years ago. The

prevailing land market value of a similar adjacent vacant plot was Rs. 90,000 per

ground. The replacement cost of new similar construction (including foundation) is Rs.

300 per sq.ft. for ground floor and Rs. 250 per sq.ft. for the first floor. External

services, amenities,boundary wall, etc. provided can be taken at 15% of the depreciated

cost of the structure.Value the property.Assume life as 80 years & salvage value as 10%.

Questions :

1.What is the value of plot?

2.What is the net present value of ground floor?

3.What is the depreciation percentage of first floor?

4.What is the net present value of first floor?

5.What is the value of services?

6.What is the total value of property?

Data :

Structure = Framed structure

Plot area = 2 grounds


Age of GF = 20 years

Plinth area of FF = 1,000 sq.ft.

Age of FF = 12 years

Replacement cost of GF = Rs. 300/sq.ft.

Replacement cost of FF = Rs. 250/sq.ft.

Prevailing market rate of plot = Rs. 90,000/sq.ft.

Services = 15%

Depreciation value = 0.225 x 2,50,000 = 56,250

Depreciated value or = 2,50,000 - 56,250

Net Present Value = Rs. 1,93,750/- (4)

Total value of building (GF + FF) = 2,32,500 + 1,93,750

= Rs. 4,26,250/-

External services 15% = 0.15 x 4,26,250

= Rs. 63,938/- (5)

Total value of property = 1,80,000 + 4,26,250 + 63,938

(Plot + Building + Services) = Rs. 6,70,188/- (6)

Answers :

1) Rs. 1,80,000/- 4) Rs. 1,93,750/-

2) Rs. 2,32,500/- 5) Rs. 63,938/-

3) 22.5% 6) Rs. 6,70,188/-

Exercise 10 :

Land extent is 500 sq.m. in which a building of 300 sq.m. is existing. Year of

construction is 2002. Present replacement cost is Rs. 20,000/sq.m. Prevailing market

rate of land is Rs. 22,000/sq.m. What is the selling price as on today (omit salvage

value)?

Data :

Extent of land = 500 sq.m.

Market rate = Rs. 22,000/sq.m.

Building area = 300 sq.m.

Replacement rate of building = Rs. 20,000/sq.m.


Salvage value = Nil

Calculation :

1.0. Plot

Extent of land = 500 sq.m.

Market rate = Rs. 22,000/sq.m.

Value : 500 x 22,000 = Rs. 1,10,00,000/-

2.0. Building

Area of building = 300 sq.m.

Replacement rate = Rs. 20,000/sq.m.

Replacement value = 300 x 20,000

= Rs. 60,00,000/-

WRITTEN DOWN VALUE & BOOK VALUE

Exercise :

In the year 2014, Mr. ‘X’ has spent Rs. 78,00,000 in purchasing a vacant site of

10,000 sq.ft. which includes registration charges, stamp duty, brokerage, etc.

What will be the book value of the plot as on 2018?

Book value is the amount spent originally in procuring the site.

Book value = Rs. 78,00,000/-

Exercise :

In April 2012, Mr. ‘X’ has purchased a residential plot of 3,000 sq.ft. for an

amount of Rs. 9,00,000/- and has paid Rs. 1,22,000 for the registration

charges, stamp paper, brokerage expenses, etc. In this plot, he constructed a

commercial building of 2,200 sq.ft. for an amount of Rs. 25,25,000. The

construction was completed in February 2013. Calculation of book value is

required for the purpose of income tax. Assume a depreciation of say, 10%.

Questions :

1.What is the book value of the property as on 31.03.2013?






Data :

Purchased cost of plot 3,000 sq.ft. = Rs. 9,00,000

in April 2012

Registration expenses stamp duty, = Rs. 1,22,000

brokerage

Commercial building 2,200 sq.ft. = Rs. 25,25,000

Depreciation percentage = 10%

Purpose of valuation = Income tax

4. INSURANCE

Question :

Calculate the insurable value of this property.

Calculations :

Value of building as if new = 1,000 x 10,5

= Rs. 1,05,00,000/-

Deduct value of foundation @15% = 1,05,00,000 - 15,75,000

= Rs. 89,25,000/-

Deduct depreciation 30% = Rs. 26,77,500/-

Insurable value = Rs. 62,47,500/-

say Rs. 62.50 lakhs.

Exercise :

A standard fire policy is there for 50 lakhs for a factory building 700 Sq.m. of 20 years

old. Replacement rate is Rs 20,000 / sq.m. Fire loss is Rs 10 lakhs.

Questions :

1. Claim payable is how much?

2. If policy excess of Rs.10,000/- is to be considered, then what is the claim payable?

3. What is the present market worth less foundation before fire damage?

4. What is the replacement cost of new building today deducting 10% for foundation?

5. What is the depreciation of bldg excl. foundation on straight line method?

Life : 60 years; Salvage = Nil

Data :

Sum insured = Rs. 50,00,000/-

Area of the building = 700 sq.m.



Fire loss = Rs. 10,00,000/-

Calculation :



Replacement value = 700 x 20,000

= Rs. 1,40,00,000/-


Life of the building assumed = 60 years

Exercise :

A standard fire policy was taken for 161 lakhs for a factory building (RCC roof) 1,400

sq.m.of 15 years old. Replacement cost is Rs. 18,000 / sq.m. Fire loss is Rs. 30 lakhs.

Assume life as 60 years. Salvage value : NIL.

Questions :

1. Claim payable is how much?

2. If policy excess of Rs. 10,000/- is to be considered, then what is the claim payable?

3. What is the present worth less foundation before fire damage?

4. What is the replacement cost of new building today deducting 15% for foundation?

5. What is the depreciation of bldg excl. foundation on straight line method?

6. What will be the depreciation percentage if the salvage value is 20%?

Data :

Sum insured = Rs. 1,61,00,000/-

Area of the building = 1,400 sq.m.



Fire loss = Rs. 30,00,000/- , Life = 60 years

Salvage value = Nil

Exercise :

A standard fire policy with reinstatement clause was taken for 161 lakhs for a

factory building (RCC roof) 1,400 sq.m of 15 years old. Replacement cost is

Rs. 18,000/sq.m.Fire loss is Rs. 30 lakhs. Assume life as 60 years.

Salvage value : Nil. Plinth & Foundation: 15%.

Questions :

1) Claim payable is how much?

2) If policy excess of Rs. 10,000/- is to be considered, then what is the claim

payable?

Data :

Sum insured = Rs. 1,61,00,000



Replacement rate = Rs. 18,000 /sq.m.

Fire loss = Rs. 30,00,000

Life = 60 Years

Salvage value = Nil

Plinth & foundation = 15%

Special clause = Reinstatement value clause included

Calculation :




= Rs. 2,52,00,000/-


Life of the building = 60 Years

Salvage value = Nil

Reinstated Value of the building

Less foundation 15% = Less by 15% of 2,52,00,000

= 2,52,00,000 x (100-15)%

= Rs. 2,14,20,000/-

Policy excess = Rs. 10,000

Claim payable = 22,50,000 - 10,000 = Rs. 22,40,000/- (2)

Exercise :

One factory got damaged. The sum insured is Rs. 50,00,000/-. Claim made by

the owner- Rs. 10,00,000/-. The property is 20 years old. Present replacement

rate of a similar new building is Rs. 7,000/- per sq.m. Builtup area - 2,000

sq.ft.

1) What is replacement value of the building?

2) What would be the claim approved by insurance company?.

Data :


Claim made by the owner = Rs. 10,00,000/-


Built up area = 2,000 sq.ft.


Answers :

1) The replacement value is Rs. 13,01,090/-.

2) The depreciated value (including the foundation is Rs. 6,50,545/-.

The owner has insured the building for Rs. 50,00,000/-. The sum insured in

adequate. These is no under insurance. Though the owner has claimed Rs.

10,00,000/-, the actual depreciated value is only Rs. 6,50,545/-. Therefore the

sum payable is Rs. 6,50,545/- (minus the policy excess).

• (Note : If policy is made only for the super structure only, value of the

superstructure (assuming 15% for foundation) = 0.85 x 6,50,545 = Rs.

5,52,963/-. Sum payable is Rs. 5,52,963/- (less policy excess)).

Exercise :

Factory building of built-up area 700 sq.m. 20 years old, total life of the building 40

years with a specification equivalent to the current replacement cost of Rs.

20,000/sq.m. is insured for Rs. 50,00,00/- in a standard fire policy. There is a partial

damage to the building to a total loss of Rs. 10,00,000/- due to peril. 10% cost of

foundation.

Questions :

1. What is the amount payable by the insurer to the insure for the loss due to fire?

a) Rs. 2,00,000/- b) Rs. 5,00,000/-

c) Rs. 7,70,000/- d) Rs. 10,00,000/-

2. What is the present market worth of the building before fire damage (excluding

foundation)?

3. Reinstatement value of building excluding foundation?

4. What is the depreciation of the building excluding foundation? (Neglecting scrap value).

5. Which peril is not covered under standard fire policy?

a) Impact damage b) STFI

c) Earthquake d) Fire

Data :





Fire loss = Rs. 10,00,000/-

Exercise :

RCC roofed building of a 30 years is required to be insured under standard fire policy.

Advise on fair ‘Insurable value’ of the factory building on depreciated cost basis from

thefollowing data.

Plinth area of factory :

Ground floor = 500 sq.m.

First floor = 300 sq.m.

Replacement cost today = Rs. 7,500/sq.m.

Age of building = 30 years

Total life of building = 60 years

Foundation = 10%

Solution :

Total builtup area : 500 + 300 = 800 sq.m.

Total replacement value = Rs. 60,00,000/- (a)

800 sq.m. x Rs. 7,500/sq.m.

Less 10% towards cost of = Rs. 6,00,000/- (b)

foundation & plinth

Net value of the super structure = Rs. 54,00,000/- (c)

Age = 30 years

Life = 60 years

Salvage = Nil

Depreciation percentage =30/60 x 100

= 50%


= Rs. 27,00,000/-

Insurancable value = Rs. 27,00,000/-

Advice factory owner to insure building for Rs. 38,00,000/-

Exercise :

Assess the claim payable for partial loss by fire to an old factory building built in

1978. Actual damage by fire is estimated at Rs. 2 lakhs. Standard fire policy of Rs.

15 lakhs is taken by factory owner. Factory builtup area is 700 sq.m. and

replacement cost on date of damage in 2018 is Rs. 6,000/sq.m. Assume foundation

as 10%. Life : 40 years.

Solution :

Replacement cost new in 2012 = Rs. 42,00,000 (a)

700 sq.m. x Rs. 6,000/sq.m.

Less for cost of foundation and plinth 10% = Rs. 4,20,000 (b)

Net cost of superstructure = Rs. 37,80,000 (c)

Age = 20 years

Life = 40 years

Salvage = Nil


= 50%

-


= Rs. 18,90,000/-

As factory is insured only for 15 lakhs, the subject property is under insured.

Average clause of the policy will be therefore applicable.

Percentage of under insurance =15,00,000/18,90,000 x 100

= 79.37%

Actual loss suffered = Rs. 2,00,000/-

Claim payable will be 79.37%

Calim payable = 0.7937 x 2,00,000

= Rs. 1,58,740/

VALUATION BY COST INDEX METHOD

Exercise 3 :

Building cost for the residential building in Delhi, as per 01.01.1992 cost index as

100, was Rs. 2,810/sq.m. Now if Cost Index of Mumbai in 2005 is 250 as

compared to 1992 base index 100, work out replacement cost for a residential

building at Mumbai for the year 2005.

Flat rate for building cost for residential house in Mumbai for the year 2005 as per

CPWD memorandum of 1992 will be := 2,810 x 250/100

= Rs. 7,025/sq.m.

Exercise 6 :

A load bearing residential family house was built in year 1969 at Nagpur. Built-up

floor area is 200 sq.m. on ground floor and 100 sq.m./floor on each of 1st and 2nd

floor. Total plot area is 1,200 sq.m. Calculate sale value of property as in March 1989

if Building Cost Index of Nagpur was 394 in 1989 with Delhi base year 01.10.1976 as

100. Building cost for base year was Rs. 385/sq.m. and plumbing and electrification

costs were Rs. 6,000/unit and Rs. 5,700/unit respectively. Prevalent land rate in

1989 was Rs. 800/sq.m.Building is wholly provided with marble floor. Marble cost

was Rs. 250/sq.m. and mosaic tile cost was Rs. 60/sq.m. in 1989.

Questions :

1.What is the value of land as on 1989?

2.What is the replacement cost of the building?

3.What is the depreciation percentage by adopting straight line method assuming

economic life as 60 years and salvage value as 10%?

4.What is the depreciation value of the building?

5.What is the depreciated value of the building?

6.What is the total value of the property?

Data :

Place = Nagpur


GF area = 200 sq.m.

FF area = 100 sq.m.

SF area = 100 sq.m.


Cost index in Delhi for base year = 100

01.10.1976

Building cost index for Nagpur = 394

in 1989

Building cost for base year (1976) = Rs. 385/sq.m.

Plumbing cost for base year (1976) = Rs. 6,000/unit

Electrification cost for base year = Rs. 5,700/unit

Flooring cost in 1989 = While marble Rs. 250/sq.m.

Mosaic tile cost in 1989 = Rs. 60/sq.m.

Prevalent land rate in 1989 = Rs. 800/sq.m.

Calculations :

Area of plot = 1,200 sq.m.

Unit rate of plot (1989) = Rs. 800/sq.m.

Value of plot in 1989 = 1,200 x 800

= Rs. 9,60,000/- (1)

Area of ground floor = 200 sq.m.

Area of first floor = 100 sq.m.

Area of second floor = 100 sq.m.

Total area of all floors = 400 sq.m.

Unit rate of building (1976) = Rs. 385/sq.m.

Civil work cost (1976) = 400 x 385

= Rs. 1,54,000

Plumbing 3 floors x 6,000 = Rs. 18,000

Electrification 3 floors x 5,700 = Rs. 17,100

Replacement cost at Delhi (1976) = Rs. 1,89,100

This is for cost index for = 100

Cost index at Nagpur (1989) = 394

Replacement cost in Nagpur =1,89,100 x 394/100

= Rs. 7,45,054/-

Add for difference of marble & Mosaic

Rs. 250 - 60 = 190/sq.m.

Carpet area = 85% of built up area = 0.85 x 400 =340 sq.m.

Extra cost of marble = 340 x 190 = Rs. 64,600

Total building cost = 7,45,054 + 64,600 = Rs. 8,09,654/- (2)

Age = 1989 - 1969 = 20 years

Life assumed = 60 Years

Salvage assumed = 10%

Depreciation percentage = 30% (3)

Depreciation value = 0.3 x 8,09,654 = Rs. 2,42,896/- (4)

Net present value = 8,09,654 - 2,42,896

= Rs. 5,66,758/- (5)

Total value of the property = 9,60,000 + 5,66,758 = Rs. 15,26,758/- (6)

VALUATION BY BELTING METHOD

Data :

Size of plot = 50’ x 200’

Market rate of 40’ x 60’ plot = Rs. 600/-

Standard depth assumed as = 60’

Calculations :

Standard depth is assumed as 60’

Size of I belt = 50’ x 60’

Area of I belt = 3,000 sq.ft. (1)

Unit rate 100%of 600 = Rs. 600/sq.ft.

Value of I belt - 3,000 x 600 = Rs. 18,00,000/- (4)

Size of II belt = 50’ x 90’

Area of II belt = 4,500 sq.ft. (2)

Unit rate (2/3) x 600 = Rs. 400/sq.ft.

Value of II belt- 4,500 x 400 = Rs. 18,00,000/-

Size of III belt = 50’ x 50’

Area of III belt = 2,500 sq.ft. (3)

Unit rate 50% of 600 = Rs. 300/sq.ft.

Value of III belt- 2,500 x 300 = Rs. 7,50,000/-

Total value of plot 50’ x 200’ = Rs. 43,50,000/- (5)

18,00,000 + 18,00,000 + 7,50,000

Marketability is the most important factor while certifying the market value for

collateral security to bank purposes.

Exercise 3 :

Value the plot of 150 m x 350 m by belting method. The depth of first belt X is 50 m.

The depth of second belt is 2X. The depth of third belt is 4X.

Land rate for I belt = Rs. 300/m2

Rate for II belt = 40% less from I belt

Rate for III belt = 40% less from II belt

Questions :

1. What is the value of I belt?

2. What is the value of II belt?

3. What is the value of III belt?

4. What is the total value of the plot 150 m x 350 m?

Answers :

1. I belt : 150 x 50 x Rs. 300/sq.m. = Rs. 22,50,000/-

2. II belt : 150 x 100 x (300 x 0.6) = Rs. 27,00,000/-

3. III belt : 150 x 200 x (180 x 0.6) = Rs. 32,40,000/-

4. Value of the entire plot 22,50,000 + 27,00,000 + 32,40,000 = Rs. 81,90,000/-

VALUATION OF LEASEHOLD PROPERTIES

Exercise 1 :A freehold site is rented out for 99 years to a developer at a ground rent of Rs. 1,00,000 per annum, net of outgoings. It is renewable. The lessee developer has constructed a building fetching an annual rent of Rs. 5,00,000/-. Value the freeholder’s interest assuming an yield of 6%.

Value in the hands of lessor :Net income from ground rent = Rs. 1,00,000Yield = 6%Years purchase = 100 / 6 = 16.67

Value in the hands of lessor = 1,00,000 x 16.67= Rs. 16,67,000/-

Exercise 2 :Value the freehold interest of a shop which has been let out for a rent of Rs. 1,00,000 (Net) per month. The rent is renewable. Yield is 5%.

Yearly rent = 1,00,000 x 12 = Rs. 12,00,000Net income = Rs. 12,00,000Y.P. for a yield of 5% = 100/5 = 20

Capitalised value = 12,00,000 x 20= Rs. 2,40,00,000/-

Exercise 3 :An industrial corporation has decided to lease 40,000 sq.ft. plot for an user

for 60 yearsperiod. The land rate is 2,000 per sq.ft. Assuming a yield of 6%, what will be

the monthlylease?

Extent of land = 40,000 sq.ft.Market rate = Rs. 2,000/sq.ft.Value of land = Rs. 8,00,00,0000

Lease rent yield = 6%Annual rent = 8,00,00,000 x 6/100

= Rs. 48,00,000

Monthly rent = 48,00,000 / 12= Rs. 4,00,000/-

Exercise 4 :

A private trust had leased 10,000 sq.ft. plot for 99 years leasewhich can be renewed for further period. Fix lease rent if theland rate is Rs. 1,500/sq.ft. Assume lease rent as 8%.

Extent of land = 10,000 sq.ft.

Land rate = Rs. 1,500/sq.ft.

Land value = Rs. 1,50,00,000

Lease rent yield assumed = 8%

Annual lease rent = 1,50,00,000 x 8 / 100

= 12,00,000

Monthly lease rent = Rs. 1,00,000/-

Exercise 5 :

A lessor leased his 3,000 sq.ft. of land to a lessee for 99 yearson a monthly rent of Rs. 1,000 per month. Lease is renewable.In this land, the lessee has constructed a residential buildingand rented out on a total rent of Rs. 5,500 / month. Alloutgoings are 40% of rental income.

Questions :

1. What is the value of lessor’s interest? Rate of return (yield) is7%.

2. What is the lessee’s interest assuming a rate of return as 8%.

Data :

Period of lease = 99 years - renewable

Monthly rent = Rs. 1,000

Rate of return = 7%

Lessor’s interest = ?

Calculations :Lessor :Monthly rent = Rs. 1,000Yearly rent = 1,000 x 12 = Rs. 12,000Type of lease = Perpetual. can be treated as freeholdRate of return / yield = 7%Value of lessor’s right = 12,000 x 100 / 7

= Rs. 1,71,428/- (1)

Lessee :Month rent = Rs. 5,500Yearly rent = 5,500 x 12 = Rs. 66,000Less outgoings 40% = (-) Rs. 26,400Less ground rent 1,000 x 12 = (-) Rs. 12,000Net annual income = Rs. 27,600Rate of return = 8%Value of lessee’s interest = 27,600 x 100/8

= Rs. 3,45,000/- (2)Answers :1) 1,71,428/- 2) Rs. 3,45,000/-

Exercise 6 :

State government industrial development corporationleased industrial plot to the industrialist in the year1998 for a period of 99 years by charging one timepremium of Rs. 450/sq.mt. for a total land area of4,000 sq.mt. Lease rent was fixed at Rs.1 per year.Lessee built a factory (total built up area 2,000 sq.mts)on the plot in 1998 at the cost of Rs. 60,000/-. Landrate as on 2018 is Rs.1,250/sq.mt and replacement costof building for 2018 is Rs. 25,000/sq.mt.. Total life ofthe factory building is 40 years. Lease provides that thelesser is entitled to charge 50 percent unearnedincrease in land value as transfer/assignment chargesin case of sale/tranfer of the property.

Questions :• 1. What is the lessor’s interest in the property in 2018?

a) Rs. 32,00,000/- b) Rs. 16,00,000/-c) Rs. 50,00,000/- d) Nil

• 2. What is the market value of the property in 2018 if land was not of leasehold tenure and it was a free hold land?a) Rs. 7,75,00,000/- b) Rs. 10,00,00,000/-c) Rs. 7,50,00,000/- d) Rs. 5,00,00,000/-

• 3. What is the lessee’s interest in property in 2018?a) Rs. 5,00,00,000/- b) Rs. 7,75,00,000/-c) Rs. 2,75,00,000/- d) Rs. 7,59,00,000/-

• 4. Depreciation amount of the factory value in 2018 on striaght line method of depreciation and assuming 10% scrap value?a) Rs. 2,50,00,000/- b) Rs. 2,25,00,000/-c) Rs. 2,75,00,000/- d) Rs. 50,00,000/-

• 5. Which of the following statement is correct?a) Lessor’s interest in the property is right to receive 50% unearned

increase in land value only.b) Lessor’s interest in the property is value of right to receive lease rent in

property plus right to receive 50% unearned unearned increase in land value.

c) Lessee’s interest is estimated by estimating capitalised value of profitrent receivable for 20 years.

d) Lessee’s interest in the property is to be increased by amount of 50%unearned increase in land value payable to lessor as per P. N. Sikand’scase.

• 6. Which of the following statement is true?a) Lessor is entilted to take income tax of the depreciation of the building.b) Lessor' s interest in the property is nil.c) Lessee is virtually having a right to use property for life time only.d) Balance economically life is 20 years.

Data :

Year of lease = 1998Period of lease = 99 yearsOne time premium = Rs.450/sq.m. for land extentLand area = 4,000 sq.m.Lease rent = Re. 1/yearLessee built a factory of builtup area = 2,000 sq.m.Year of construction of factory by the lessee = 1998

Cost of factory (Lessee) = Rs. 60,000/-Land rate as on 2018 (date of valuation) = Rs. 1,250/sq.m.Replacement cost of building in 2018 = Rs. 25,000/sq.m.Total life of the building = 40 years

Condition : Lessor is entitled to charge 50% unearned increase in landvalue in case of sale / transfer.

Opinion :

1. Lessor’s interest :

This case of lease of land is by state government. It is assumed as a perpetual lease and reversionary value of land is negligible. The lease rent is only Re. 1/year and hence its capitalised value will be negligible. Lessor’s interest in land value would be therefore is restricted to claim 50% of unearned increase in land value in case of sale.

Land area = 4,000 sq.m.

Prevailing land rate 2018 = Rs. 1,250/sq.m.

One time premium charged in 1998 = Rs. 450/sq.m.

Unearned increase 1,250 – 450 = Rs. 800/sq.m.

The percentage the lessor is entitled to = 50%

charge in case of transfer

Unearned increase the lessor can enjoy = 0.5 x 800 = Rs. 400/sq.m.

The lessor’s value 4,000 x 400 = Rs. 16,00,000/- (1)

.

.

• . The answer is ‘b’.

2. Value of property assuming it is a freehold :

(i) Land :Land area = 4,000 sq.m.Unit rate of land = Rs. 1,250/sq.m.Land value - 4,000 x 1,250 = Rs. 50,00,000/-

(ii) Building :Building area = 2,000 sq.m.Replacement cost = Rs. 25,000/sq.m.Replacement value = 2,000 x 25,000 = Rs. 5,00,00,000/-Age of the building : 2018 - 1998 = 20 yearsLife of the factory = 40 yearsSalvage value assumed = 10%Depreciation percentage = 20/40 x 90 – 45%

Depreciation value = 0.45 x 5,00,00,000= Rs. 2,25,00,000/-

Depreciated value = Rs. 2,75,00,000/-(5,00,00,000 - 2,25,00,000)

(iii) Total value :Value of land = Rs. 50,00,000/-Depreciated value of building = Rs. 2,75,00,000/-Total value = Rs. 3,25,00,000/- (2)

(Note : The options given in the question is not tallying with this answer).

3. Value of lessee’s interest :

Total value of land : 4,000 x 1,250= Rs. 50,00,000/-Value of lessee’s interest = Total value of land - Value of lessor’s

interest= 50,00,000 - 16,00,000= Rs. 34,00,000/-

Lessee also holds in the building value.Depreciated value of building = Rs. 2,75,00,000/-

Total value :Land = Rs. 34,00,000Depreciated value of building = Rs. 2,75,00,000/-

= Rs. 3,09,00,000/-

(Note : The options given in the question is not tallying with this answer).

• 4. Depreciation amount by straight line method

= 2,000 x 25,000 x ( 20/40 x 90)= 0.45 x 5,00,00,000= Rs. 2,25,00,000/-

. The answer is ‘b’.

• 5. Lessor’s interest in the property is right to receive 50% unearned increase in land value only.The answer is ‘a’.

• 6. Total life = 40 yearsAge 2018 - 1998 = 20 yearsBalance economic life = 40 - 20 = 20 years

The answer is ‘d’.

Exercise 7 :A government M.I.D.C. gives 8,000 sq.m. of land on 99 years lease@ 1/- P.A. lease rent and charged one time premium of Rs. 450 /sq.ft. in the year 1998. The lessee in the year 1998 constructed anindustrial shed 4,000 sq.m. of BU area with his own expenditure.The age of the shed is 20 years as on year 2018 and total life of theshed is 40 years. The land rate is Rs. 2,000 / sq.m. and replacementcost is Rs. 25,000 / sq.m. Lease provides that the lessor is entitledto charge 50% unearned increase in land value as transfer /assignment charges in case of sale / transfer of the property.Calculate the following :

1. What is the lessors interest?2. What is the total value of property considering a freehold

property?3. What is the lessee interest?4. What is the reversionary value of the leasehold land?5. What is the depricated value of shed?

Data :

Year of lease = 1998Period of lease = 99 yearsOne time premium = Rs.450/sq.m. for land extentLand area = 8,000 sq.m.Lease rent = Re. 1/yearLessee built a factory of builtup area = 4,000 sq.m.Year of construction of factory by the = 1998lessee

Land rate as on 2018 (date of valuation) = Rs. 2,000/sq.m.Replacement cost of building in 2018 = Rs. 25,000/sq.m.Total life of the building = 40 yearsDate of valuation = 2018Age of the shed 2018 – 1998 = 20 years

Opinion :1. Lessor’s interest :

This case of lease of land is by state government. It is assumed as aperpetual lease and reversionary value of land is negligible. The lease rentis only Re. 1/year and hence its capitalised value will be negligible. Lessor’sinterest in land value would be therefore is restricted to claim 50% ofunearned increase in land value in case of sale.

Land area = 8,000 sq.m.Prevailing land rate 2018 = Rs. 2,000/sq.m.One time premium charged in 1998 = Rs. 450/sq.m.Unearned increase 2,000 – 450 = Rs. 1,550/sq.m.The percentage the lessor is entitled to = 50%charge in case of transfer

Unearned increase the lessor can enjoy = 0.5 x 1,550 = Rs. 775/sq.m.The lessor’s value 8,000 x 775 = Rs. 62,00,000/- (1)

2. Value of property assuming it is a freehold :(i) Land :

Land area = 8,000 sq.m.Unit rate of land = Rs. 2,000/sq.m.Land value - 4,000 x 1,250 = Rs. 1,60,00,000/-

(ii) Building :Building area = 4,000 sq.m.Replacement cost = Rs. 25,000/sq.m.Replacement value = 4,000 x 25,000

= Rs. 10,00,00,000/-

Age of the building : 2018 - 1998 = 20 yearsLife of the factory = 40 yearsSalvage value assumed = 10%Depreciation percentage = 20/40 x 90 = 45%

Depreciation value = 0.45 x 10,00,00,000= Rs. 4,50,00,000/-

Depreciated value = Rs. 5,50,00,000/-(10,00,00,000 - 4,50,00,000)

(iii) Total value :Value of land = Rs. 1,60,00,000/-Depreciated value of building = Rs. 5,50,00,000/-Total value = Rs. 7,10,00,000/- (2)

3. Value of lessee’s interest :

Total value of land : = Rs. 1,60,00,000/-(8,000 x 2,000)

Value of lessee’s interest = 1,60,00,000 - 62,00,000= Rs. 98,00,000/-

Lessee also holds in the building value.

Depreciated value of building = Rs. 5,50,00,000/-

Total value :Land = Rs. 98,00,000Building = Rs. 5,50,00,000

= Rs. 6,48,00,000/-

4. Reversionary value is negligible and hence not considered.

5. Depreciated value of shed = Rs. 5,50,00,000/-

VALUATION BY PROFIT METHOD

Exercise 1 :

A hotel has 100 rooms. Room rent is Rs.1,500/day. Occupancy ratio is 65%. Income from restaurant is Rs. 200 lakhs/year. Conference hall rental income is Rs. 150 lakhs/year. Corpoartion tax, Electricity, insurance and other expenses are Rs. 200 lakhs. Staff salary Rs. 125 lakhs. Food & beverage expenses are Rs. 150 lakhs. Miscellaneous expenses Rs. 50 lakhs. Ascertain the value of the hotel by profit method assuming an yield as 10%.

1. Gross income :a. From Rooms

Number of rooms = 100Daily rent = Rs. 1,500/dayIncome from 100 rooms/day = 1,500 x 100

= Rs. 1,50,000Income from 100 rooms/year = 1,500 x 100 x 365Occupancy ratio = 65%Yearly income for 65% = 1,500 x 100 x 365 x 0.65

= Rs. 3,55,87,500/-

b. Income from restaurant = Rs. 2,00,00,000/-

c. Income from conference hall = Rs. 1,50,00,000/-

Gross income = Rs. 7,05,87,500/-

2. Expenses :Corporation tax, electricity, etc. = Rs. 2,00,00,000Staff salary = Rs. 1,25,00,000Food & beverage expenses = Rs. 1,50,00,000Miscellaneous expenses = Rs. 50,00,000Total expenses = Rs. 5,25,00,000/-

3. Net income :Gross income = Rs. 7,05,87,500Expenses = Rs. 5,25,00,000Net income = Rs. 1,80,87,500/-

4. Value :Net income = Rs. 1,80,87,500Yield = 10%Value = 1,80,87,500 x 100/10

= Rs. 18,08,75,000/-

Exercise 2 :

It is a marriage hall in a Town. The daily rentalcharge is Rs. 25,000/-. The number of bookingper year is 50 percent. Expenses are : Propertytax - Rs. 25,000/half year, Staff salary - Rs.40,000/month, Yearly Insurance - Rs. 35,000/-,Repairs & Maintenance – Rs. 15,000/month,Electricity - Rs. 50,000/month, Miscellaneousexpenses - Rs. 25,000/month, Managementexpenses : Rs. 1,00,000/month. Determine thevalue by profit method assuming an yield of 12%.

1. Gross income :Daily rental charges = Rs. 25,000Yearly rental charge = 25,000 x 365Occupation ratio = 50%Gross income = 25,000 x 365 x 0.5

= Rs. 45,62,500/-

2. Expenses :Property tax 25,000 x 2 = Rs. 50,000Staff salary 40,000 x 12 = Rs. 4,80,000Insurance = Rs. 35,000Repairs & maintenance = Rs. 1,80,000

(15,000 x 12)

Electricity - 50,000 x 12 = Rs. 6,00,000Miscellaneous expense = Rs. 3,00,000

(25,000 x 12)

Management expense = Rs. 12,00,000(1,00,000 x 12)

Total expenses = Rs. 28,45,000/-

3. Net income :

Gross income = Rs. 45,62,500

Expenses = Rs. 28,45,000

Net income = Rs. 17,17,500

4. Value :

Net income = Rs. 17,17,500

Yield = 12%

Value = 17,17,500/12 x 100

= Rs. 1,43,12,500/-

BANK VALUATION

Exercise 1 :In a plot of 2,400 sq.ft., Mr. X has proposed to construct a building of 1,200 sq.ft. He has obtained loan. Basement completed (25%). Land rate is Rs. 1,000/sq.ft. The unit construction cost is Rs. 1,800/-. Determine the stage value of the property for primary security purpose to bank.

Land value = 2,400 x 1,000 = Rs. 24,00,000Building value = 0.25 x 1,200 x 1,800 = Rs. 5,40,000Total value = Rs. 29,40,000/-

Exercise 2 :The plot area is 3,000 sq.ft. The land rate is Rs. 1,500/sq.ft. The owner wishes to construct a building of 3 floors of 1,200 sq.ft. each. The average unit rate of construction is Rs. 1,600/-. The total estimated amount is Rs. 57.60 lakhs and the bank has sanctioned a loan of 43.20 lakhs. The owner has completed 40% of the civil works. In order to pay the first installment of loan, the bank directs the valuer to certify the stage cost of the building alone.

Number of floors = 3Built up area of each floor = 1,200 sq.ft.Total built up area 3 x 1,200 = 3,600 sq.ft.Unit rate of construction = Rs. 1,600/-Total value of completion = 3,600 x 1,600

= Rs. 57,60,000/-

Stage precentage completed = 40%Stage value = 0.4 x 57,60,000

= Rs. 23,04,000/-

Exercise 3 :In the year April 2018, Mr. X has purchased plot of 2,400 sq.ft. for Rs.24,00,000. In the same year (April to December) he has constructed aresidential building for Rs. 18,00,000. He wants to sell. He quoted (Jan2019) Rs. 48,00,000/-. The borrower approached the bank and the bankdirected its panel valuer to inspect the site and give a report. The valuercertified as Rs. 45,00,000/-as on February 2019.Now,

1) What is the cost of the property for 2018 - 19?2) What is the price?3) What is the value?

Answers :1) Cost = 24,00,000 + 18,00,000 = Rs. 42,00,000/-

2) Price is Rs. 48,00,000/-

3) Value is Rs. 45,00,000/-

GROUND RENTExercise :

Mr. ‘X’ is owning a vacant site of 8,000 sq.ft. near the bus stand. Hewants to let out. The prevailing unit market rate is Rs. 1,000 and theguideline rate is Rs. 1,500/sq.ft. Mr. Y wants this site for parkingvehicles. Mr. Z also wants this site and wishes to construct a shed.Assume rate of return of 4% for secured ground rent and 5% forunsecured ground rent.

Questions :1. What is the market value to determine the rent for Mr. Y?2. What is the market value to determine the rent for Mr. Z?3. What is the yearly ground rent that can be fixed for Mr. Y?4. What is the monthly ground rent that can be fixed for Mr. Y?5. What is the yearly ground rent that can be fixed for Mr. Z?6. What is the monthly ground rent that can be fixed for Mr. Z?

Data :

Extent of site = 8,000 sq.ft.

Market rate of site = Rs. 1,000/sq.ft.


Rate of return for secured ground rent = 4%

Rate of return for unsecured ground rent = 5%

Calculations :For Y & Z :

Extent of site = 8,000 sq.ft.Prevailing unit rate = Rs. 1,000/sq.ft.Market value (for Y & Z) = Rs. 80,00,000/- (1&2)

(8,000 x 1,000)

For Y :Market value = Rs. 80,00,000Type of rent = UnsecuredRate of return assumed = 5%Yearly ground rent = 80,00,000 x (5/100)

= Rs. 4,00,000/- (3)

Monthly ground rent = 4,00,000 / 12= Rs. 33,333/- (4)

For Z :Market value = Rs. 80,00,000Type of rent = SecuredRate of return assumed = 4%Yearly ground rent = 80,00,000 x (4/100)

= Rs. 3,20,000/- (5)

Monthly ground rent = 3,20,000 / 12= Rs. 26,667/- (6)

Answers :

1) Rs. 80,00,000/- 4) Rs. 33,333/-2) Rs. 80,00,000/- 5) Rs. 3,20,000/-3) Rs. 4,00,000 /- 6) Rs. 26,667/-

VALUATION OF TENANTED PROPERTIES

Exercise 1 :The monthly rent (Net) of a shop of 540 sq.ft. is Rs. 12,000/-. Calculate the approximate value by rent capitalisation method by adopting a rate of return as 5%.

Monthly rent = Rs. 12,000Yearly rent = 12,000 x 12

= Rs. 1,44,000/-

Rate of return adopted = 5%Capitalised value = 1,44,000 x 100/5

= Rs. 28,80,000/-

Exercise 2 :The net monthly rent of a residential building of 1,250 sq.ft. is Rs. 16,500/-. Find the approximate value of the property by rent capitalisation method by adopting a rate of return as 3%.

Monthly rent = Rs. 16,500Yearly rent = 16,500 x 12

= Rs. 1,98,000/-

Rate of return = 3%Capitalised value = 1,98,000 x 100/3

= Rs. 66,00,000/-

Exercise 3 :

A new shop was purchased for Rs. 10,00,000 which was rented out for Rs. 5,000 per month. What is the yield?

Capital value = Rs. 10,00,000

Yearly rent = Rs. 5,000 x 12 = Rs. 60,000

Yield = (60,000/10,00,000) x 100

= 6%

Exercise 4 :

A fully rented fully developed building in a plot has a total of 4floors. Total plot area is 1,000 sq.m. and total builtup for area of thebuilding is 250 sq.m / per floor. Permissible FSI is 1.00. There are 4tenants per floor and tenants of lower 2 floors pay a rent of Rs. 750/ month / tenement. which includes property tax. Top 2 floors areoccupied by the owners of the property itself. Total property taxesare Rs. 25,000 / 6 months for 4 floors. Tenant’s rent includes 50% oftotal tax, Non agricultural tax of the plot is Rs. 800 / year andBuilding insurance premium is Rs. 1,000 / year. Assume repair costat 6% of the gross rent and collection & management charges at 3%of the gross rent. Stamp duty paid at the time of purchase is Rs.9,000/-. The land is of freehold tenure. Prevalent land rate offreehold land in the locality at present is Rs. 8,000/sq.m. The rate ofownership flats in the locality for similar construction as on today isRs. 30,000/sq.m.

Questions :

1. What will be the total annual rent receivable by the landlord from all the tenants?

a) Rs. 6,000/- b) Rs. 72,000/-

c) Rs. 1,44,000/- d) Rs. 12,000/-

2. What will be the total outgoings including repairs allowance & collection charges

for the tenanted portion of the building?

a) Rs. 32,380/- b) Rs. 57,380/-

c) Rs. 33,280/- d)

3. What will be the present market value of the tenanted portion of the building if

rental income is assumed to be in perpetuity & rate of capitalisation is adopted

@ 8%

a) Rs. 9,90,500/- b) Rs. 1,50,00,000/-

c) Rs. 77,50,000/- d) Rs. 4,95,250/-

4. What will be the present market value of the owner occupied portion of the

Building?a) Rs. 75,00,000/- b) Rs. 1,50,00,000/-c) Rs. 10,00,000/- d) Rs. 78,00,000/-

5. Which of the following is not considered as outgoing for computing net rent

received by the landlord?a) Property tax b) Repair costc) Stamp duty paid d) Management charges

6. What is the market value of the balance potential in the property?a) Rs. 1,50,000/- b) Rs. 15,00,000/-c) Zero d) Reversionary value of the land

Data :

Property tax for 4 floors = Rs. 25,000 / 6 months

Non Agricultural tax for Mumbai = Rs. 800 / year

Building insurance = Rs. 1,000 / year

Repair cost & maintenance = 6% Gross rent

Rent collection charge = 3% Gross rent

Market rate of land = Rs. 8,000 / sq.m.

Prevalent unit rate of flat = Rs. 30,000 / sq.m.

Opinion :

1. Rent received by the owner :

Tenants occupied portions = GF & FF

Number of tenants in each flat = 4

Total number of flats in all flats = 2 x 4 = 8

Monthly rent for each flat = Rs. 750/-

Monthly rent for all flats = 750 x 8 = Rs. 6,000

Yearly rent for all flats = 6,000 x 121 = Rs. 72,000/-

The answer is “b”.

2. Outgoings :

Property tax = Rs. 50,000N.A. (Non-Agricultural tax) = Rs. 800Insurance premium = Rs. 1,000

= Rs. 51,800

Since the tenants are bearing 50% of the above expenses, the actual outgoings of the owner = Rs. 25,900

Maintenance charges 6% of gross rent = Rs. 4,320(0.06 x 72,000)

Rent collection charge 3% of gross rent = Rs. 2,160(0.03 x 72,000)

Total outgoings = Rs. 32,380/-

The answer is “a”.

3. Capitalisation amount :

Gross income = Rs. 72,000

Outgoes = Rs. 32,380

Net income = Rs. 39,620

Yield = 8%

Capitalised amount = 39,620 x (100 / 8)

= Rs. 4,95,250/-

The answer is “d”.

4. Value of the building - free holder (land owner) :

FSI = 1

Area of the flat 2 x 250 = 500 sq.m.

Unit rate of flat = Rs. 30,000/sq.m.

Value 500 x 30,000 = Rs. 1,50,00,000/-

The answer is “b”.

5. While computing net rent received by the landlord, Stamp duty is not to be

considered.

The answer is “c”.

6. The market value of the balance potential in the property is zero.

The answer is “c”.

Exercise 5 :

A fully rented, fully developed building yields gross rent of Rs.48,000 per year. Adopt total outgoings at Rs. 28,000/year. Ifexpected rate of return is 8%, find out fair sale value of theproperty. Rent Act is applicable.

Gross Annual Receivable rent = Rs. 48,000Less annual outgoings = Rs. 28,000

Net receivable rent = Rs. 20,000Rate of return = 8%Value of the property = 20,000 x 100/8 = 2,50,000/-

Exercise 6 :

A fully rented fully developed building has G + 3 upper floors. Thereare 6 tenants per floor. Ground floor tenants pay rent of Rs.500/month for each flat. Upper first floor, second floor and thirdfloor tenants, pay rent of Rs. 525/month per flat, Rs. 550/monthper flat and Rs. 550/month per flat respectively. Property taxes areRs. 28,000 per 6 month. N.A. tax is Rs. 500/year. Building Insurancepremium is Rs. 850/year. Sweeper salary is Rs.150/month. Commonlight bill is Rs.80/month. General repairs and rent collection chargesare 8% & 3% of gross income respectively.

Calculate market value of the property if building is 30 years old andexpected rate of return in real estate market is 10%. There are noaccrued major repairs to building.

1. Gross income :

Monthly rent from GF = Rs. 500 / tenant

Monthly rent from FF = Rs. 525 / tenant

Monthly rent from SF = Rs. 550 / tenant

Monthly rent from TF = Rs. 550 / tenant

Total monthlty rent form one tenant = Rs. 2,125

Total monthlty rent form six tenants = 2,125 x 6 = Rs. 12,750/-

Yealy rent form six tenants = 12,750 x 12 =Rs. 1,53,000/-

2. Outgoings :

Property taxes Rs. 28,000 x 2 = Rs. 56,000

N.A. (Non agricultural) Tax / year = Rs. 500

Insurance premium = Rs. 850

Sweeper salary Rs. 150 x 12 = Rs. 1,800

Common light Rs. 80 x 12 = Rs. 960

Collection & Management 3% GR = Rs. 4,590

General Repairs 8% of G.R. = Rs. 12,240

Total = Rs. 76,940

3. Net Annual rent :

Gross income = Rs. 1,53,000

Outgoings = (-) Rs. 76,940

Net annual rent = Rs. 76,060

4. Value :

Net annual rent = Rs. 76,060

Yield = 10%

Value = 76,060 x 100/10

= Rs. 7,60,600/-

Exercise 7 :

A fully rented fully developed building rented in 1970 for thefirst time have ground + 2 upper floors. There are 4 tenants oneach floor. Ground floor tenants pay rent of Rs. 400/ month /tenant. First floor rent is Rs. 425 / month / tenant. Secondfloor rent is Rs. 450 /month / tenant. Property taxes are Rs.8,500/6 months. N.A. tax is Rs. 400 / year. House insurance isRs. 600 / year. Calculate fair sale value of the property if RentControl Act is applicable. Assume rate of capitalisation as9.5%. Repairs & collection charges can be adopted as 8% & 4%of gross rent respectively

Value the property assuming an yield of 9.5%.

1. Gross rent :

Rent for GF = Rs. 400/-

No. of tenants = 4

Monthly rent form GF = 400 x 4 = Rs. 1,600/-

Rent for FF = Rs. 425/-

No. of tenants = 4

Monthly rent form FF = 425 x 4 = Rs. 1,700/-

Rent for SF = Rs. 450/-

No. of tenants = 4

Monthly rent form SF = 450 x 4 = Rs. 1,800/-

Total monthly rent from GF,FF,SF = Rs. 5,100/-

1,600 + 1,700 + 1,800

Yearly rent 5,100 x 12 = Rs. 61,200/-

2. Outgoings :

Property tax Rs. 8,500 x 2 = Rs. 17,000

Repairs 8% of 61,200 = Rs. 4,896

N.A. (Non agricultural) tax / year = Rs. 400

House insurance premium/year = Rs. 600

Sweeper & common light 300 x 12 = Rs. 3,600

Collection & management 4% GR = Rs. 2,448


3. Net income :

Gross income = Rs. 61,200

Outgoings = (-) Rs. 28,944

Net income = Rs. 32,256/-

4. Value :

Sale value of property = 32,256 x (100 / 9.5)

= Rs. 3,39,536/-

say Rs. 3,40,000/-

Exercise 8 :

An apartment carries 4 floors built on a plot of area 1,000 sq.m.Each floor area is 250 sq.m. The GF & FF have been rented and SF &TF is in possession of the owner. Each floor carries 4 tenements,and tenants pay @ Rs. 750 / tenement as rent. The property taxbeing paid is @ Rs. 25,000 / six month. Rs. 900 / year is non agri -tax. 6% per annum towards management cost. Rs. 9,000/- stampduty cost. 3% towards rent collection charge. Cost of land is Rs.2,000 / sqm and cost of construction is Rs. 25,000 / sqm, FSI is 1.Calculate the following :

1. What is the total rent?2. What is the total outgoes?3. What is the valuation of owner occupied portion?4. What is the balance potential in building?5. What is the depreciated cost of building?6. What is the tenanted portion value @ rate of return of 8% PA?

Data :

Property tax = Rs. 25,000 / 6 months

Non Agricultural tax (for Mumbai) = Rs. 900 / year

Management cost = 6%

Stamp duty = Rs. 9,000/-

Cost of land = Rs. 2,000/sq.m.

Cost of construction = Rs. 25,000/sq.m.

Rent collection charge = 3%

Opinion :

1. Rent received by the owner :

Tenants occupied portions = GF & FF

Number of tenants in each flat = 4

Total number of flats in all flats = 2 x 4 = 8

Monthly rent for each flat = Rs. 750/-

Monthly rent for all flats = 750 x 8 = Rs. 6,000

Yearly rent for all flats = 6,000 x 121 = Rs. 72,000/-

2. Outgoings :

Note : (It is assumed that the tenents are bearing 50% of the property tax, N.A.tax). It is the practice in Maharashtra.

Property tax = Rs. 50,000N.A. (Non-Agricultural tax) = Rs. 900

= Rs. 50,900

Since the tenants are bearing 50% of the above expenses, the actual outgoings for the owner = Rs. 25,450Management charges 6% of gross rent = Rs. 4,320

(0.06 x 72,000)

Rent collection charge 3% of gross rent = Rs. 2,160(0.03 x 72,000)


3. Value of the building - free holder (land owner) :FSI = 1Area of the flat 2 x 250 (SF & TF) = 500 sq.m.Unit rate of flat = Rs. 25,000/sq.m.Value 500 x 25,000 = Rs. 1,25,00,000/-

4. The market value of the balance potential in the property is zero.

5. Data is not adequate to calculate the depreciated cost of the building.

6. Capitalisation amount :Gross income = Rs. 72,000Outgoing = Rs. 31,930Net income = Rs. 40,070Yield = 8%Capitalised amount = 40,070 x (100 / 8)

= Rs. 5,00,875/-

RESIDUAL VALUE METHOD

Exercise 1 :

Plot area = 3,000 sq.ft. Building area = 2,400 sq.ft. The age ofthe building = 20 years (Life can be assumed as 60 years &salvage value as 10%). Replacement cost including services isRs.1,800/sq.ft. This property was sold for Rs. 60,24,000.Calculate land rate by residual technique.

Building area = 2,400 sq.ft.

Replacement rate = 1,800/sq.ft.

Replacement value 2,400 x 1,800= Rs. 43,20,000/-


Life assumed = 60 years

Salvage value = 10%

Depreciation percentage = (20 / 60) x 90 = 30%

Depreciation value 0.3x43,20,000= Rs. 12,96,000/-

Depreciated value of building = Rs. 30,24,000

Sale value (land + building) = Rs. 60,24,000

Value of land alone = Rs. 30,00,000

60,24,000 - 30,24,000

Extent of land = 3,000 sq.ft.

Rate of land 30,00,000 / 3,000 = Rs. 1,000/sq.ft

Exercise 2 :

In a plot of 4,000 sq.ft., a flat promoter constructed 8 flats of 1,000 sq.ft. each. Building rate including all services is Rs. 2,500/sq.ft. He sold one flat for Rs.66,00,000/-. Assuming his profit margin as 20%, calculate the land rate by residual technique.

Area of 8 flats 8 x 1,000 = 8,000 sq.ft.Area of plot = 4,000 sq.ft.FSI : 8,000 / 4,000 = 2Selling price [(Land + Building + Profit) = Rs. 66,00,000

Unit rate of flat 66,00,000/1,000 = Rs. 6,600 (This is composite rate)Promoter’s profit = 20%Land & building excluding profit = 6,600 / 1.2

= Rs. 5,500/-

Deduct building unit rate = (-) Rs. 2,500Land component alone = Rs. 3,000FSI = 2Land rate 3,000 x 2 = Rs. 6,000/-

CAPITAL GAIN

Exercise 1 :

On 07.12.1989, a property was acquired by Mr. X for 8.08 lakhs. In June1992, improvements were made for 12.06 lakhs. On 10.12.2014, theproperty was sold to 1.93 crores. (172, 223, 1024 are the cost inflationindex for 1989 - 90, 1992 - 93, 2014 – 15 respectively).

Questions :1. What is the Indexed cost of acquisition?2. What is the indexed cost of improvement?3. What is the total cost of acquisition & improvement?4. What is the taxable capital gain?5. What is the tax to be paid by Mr. ‘X’?6. If the property is owned by a company, what is the capital gain tax?

Calculations :

Date of acquisition = 07.12.1989 (1989 - 90)

Cost of acquisition (12/1989) = Rs. 8,08,000

Cost of improvements (6/1992) = Rs. 12,06,000 (1992 - 93)

Date of transfer = 10.12.2014 (2014 - 15)

Sale consideration = Rs. 1,93,00,000

Cost inflation index 1989 - 90 = 172


Cost inflation index 2014 - 15 = 1,024

1. Indexed cost of acquisition = 8,08,000 x (1,024/172)

= Rs. 48,10,419/- (1)

2. Indexed cost of improvement = 12,06,000 x (1,024/223)

= Rs. 55,37,865/- (2)

3. Total indexed cost of acquisition = 48,10,419 + 55,37,865

& indexed cost improvement

= Rs. 1,03,48,284/- (3)

4. Taxable capital gain = 1,93,00,000 - 1,03,48,284

= Rs. 89,51,716/- (4)

5. Tax in the hand of Mr. ‘X’ - 20% = 0.2 x 89,51,716

= Rs. 17,90,343/- (5)

6. If it is owned by a company, = 0.4 x 89,51,716

tax - 40%

= Rs. 35,80,686/- (6)

Exercise 2 :

On 09.01.1990, a property was acquired by Mr. X for 9.49lakhs. In August 1992, improvements were made for 14.76lakhs. On 17.12.2014, the property was sold to 1.97 crores.172, 223, 1024 are the cost inflation index for 1989 - 90, 1992- 93, 2014 – 15 respectively.

Questions :

1. What is the indexed cost of acquisition?

2. What is the indexed cost of improvement?

3. What is the total indexed cost of acquistions &

improvement?

4. What is the taxable capital gain?

Calculations :


Cost of acquisition (12/1989) = Rs. 9,49,000/-


Date of transfer = 17.12.2014 (2014 - 15)

Sale consideration = Rs. 1,97,00,000



Cost inflation index 2014 - 15 = 1,024

Indexed cost of acquisition = 9,49,000 x 1024/172= Rs. 56,49,860/- (1)

Indexed cost of improvement= 14,76,000 x 1024/223= Rs. 67,77,686/- (2)

Total indexed cost of acquisition & improvement= 56,49,860 + 67,77,686= Rs. 1,24,27,546/- (3)

Taxable capital gain = 1,97,00,000 - 1,24,27,546= Rs. 72,72,454/- (4)

Answers :1) Rs. 56,49,860/- 3) Rs. 1,24,27,546/-2) Rs. 67,77,686/- 4) Rs. 72,72,454/-

Exercise 3 :

On 10.10.1982, Mr. X acquired a property consisting of 3,000sq.ft. of plot and 4,500 sq.ft. of building in Chennai for a costof Rs. 10,00,000/-. On 06.02.2017, he sold his property for asale consideration of Rs. 2,00,00,000/-. 109 & 1125 are thecost inflation index for 1982 - 83 & 2016 - 17 respectively.

Questions :

1. What will be the indexed cost of acquisition?

2. What is the capital gain?

Calculations:

Date of acquisition = 10.10.1982 (1982 - 83)Cost of acquisition = Rs. 10,00,000C.I.I. for 1982 – 83 = 109Date of transfer = 06.02.2017 (2016 - 17)C.I.I. for 2016 - 17 = 1,125

1) Indexed cost of acquisition = 10,00,000/109 x 1125= Rs. 1,03,21,100/- (1)

2) Capital gain = 2,00,00,000 - 1,03,21,100= Rs. 96,78,900/- (2)

Answers :1) Rs. 1,03,21,100/- 2) Rs. 96,78,900/-

Exercise 4 :

Mr. ‘X’ acquired a property in June 1990 for 12.05 lakhs. On10.12.2014, this property was sold for a sale consideration of85.14 lakhs. 182, 1024 are the cost inflation index for 1990 -91 & 2014 - 15.

Questions :

1. What is the cost of acquistion?


Calculations :

Date of acquisition = June 1990 (1990 - 91)Cost of acquisition = Rs. 12,05,000Fair market value as on 1.4.81 = Not applicable hereDate of transfer = 10.12.2014 (2014 -15)Sale consideration = Rs. 85,14,000Cost inflation index 1990 - 91 = 182Cost inflation index 2014 - 15 = 1,024


Taxable capital gain = 85,14,000 - 67,79,780= Rs. 17,34,220/- (2)

Answers :1) Rs. 67,79,780/- 2) Rs. 17,34,220/-

Exercise 5 :

An individual owned property was originally acquired in01.10.1972 for 1.02 lakhs. The fair market value of theproperty as on 01.04.1981 is 5.25 lakhs. On 10.12.2014, thisproperty was sold for a sale consideration of 75.05 lakhs. 100,1024 are the cost inflation index for 1981 - 82 & 2014 - 15.

Questions :



Calculations :

Date of acquisition = 01.10.1972Cost of acquisition = Rs. 1,02,000Fair market value as on 1.4.81 = Rs. 5,25,000 (1981 – 82)as worked out

Date of transfer = 10.12.2014 (2014 - 15)Sale consideration = Rs. 75,05,000Cost inflation index 1981 - 82 = 100Cost inflation index 2014 - 15 = 1,024



Answers :1) Rs. 53,76,000/- 2) Rs. 21,29,000/-

Exercise 6 :

On 12.12.2010, a property was acquired by Mr. Y for 75.28lakhs. On 10.12.2014, the same was sold for 1.03 crores. 711,1024 are the cost inflation index for 2010 – 11 & 2014 - 15.

Questions :



Calculations :

Date of acquisition = 12.12.2010 (2010 - 11)Cost of acquisition = Rs. 75,28,000Date of transfer = 10.12.2014 (2014 -15)Sale consideration = Rs. 1,03,00,000Cost inflation index 2010 - 11 = 711Cost inflation index 2014 – 15 = 1,024

Indexed cost of acquisition = 75,28,000 x 1024/711= Rs. 1,08,42,014/- (1)

Taxable capital gain = 1,03,00,000 - 1,08,42,014= (-) Rs.5,42,014 (2)

It is a loss, there is no taxable gain

Answers :1) Rs. 1,08,42,014/-2) (-) Rs. 5,42,014 It is a loss, there is no taxable gain.

Exercise 7 :

A flat was purchased in 1981 for Rs. 2,40,000/-. As a gift from his uncle,the assessee received this flat having an area of 80 sq.m. in June 2001.Theassessee has made improvements in the flat in August 2005 at a cost ofRs. 15,00,000/-. He sold this flat in 2018 for Rs. 2,40,00,000/-. Societytransfer charges was Rs.50,000/- and the brokerage charges were Rs.1,00,000/-. Prevailing rate of flat as on 2001 is Rs. 40,000/m2Cost inflation index as on 2001 is 100. Cost inflation index on 2005 is 117and costinflation index on 2018 is 272.

Questions :1) What is the indexed cost of improvement?2) What is the indexed cost of acquisition?3) Compute capital gain at 20%?4) What are the deductions as per Section 48(i)?5) Whether the assessee is liable for paying capital gains?

Solution :

1. Indexed cost of improvements :

Cost of improvement made in 2005 = Rs. 15,00,000

Cost inflation index in 2005 = 117

Cost inflation index in 2018 = 272

. Indexed cost of improvements in 2018 = 1500000 x 272/117

= Rs. 34,87,179/- (1)

2. Indexed cost of acquisition :

Flat was purchased in = 1981 - Rs. 2,40,000/-Flat was gifted in = 2001 - 80 sq.m.Flat was sold in = 2018 - Rs. 2,40,00,000/-

For the purpose of computing capital gain, the FMV as on 01.04.2001 is to be determined.Area of the flat = 80 sq.m.Rate prevailing in 2001 as given = Rs. 40,000/sq.m.. Value of the flat as on 2001 = 80 x 40,000

= Rs. 32,00,000/-

Cost inflation index in 2001 = 100Cost inflation index in 2018 = 272

Indexed cost of Acquisition = 32,00,000 x 272/100= Rs. 87,04,000/- (2)

3. Computation of capital gain :

Indexed cost of acquisition = Rs. 87,04,000I ndexed cost of improvements = Rs. 34,87,179

Total indexed cost of acquisition = Rs. 1,21,91,179/-& improvementsSale consideration = Rs. 2,40,00,000Less expenses : = (-) Rs. 1,50,000Society transfer charges= Rs. 50,000

Brokerage = Rs. 1,00,000Total expenses = Rs. 1,50,000

Net income from sale = Rs. 2,38,50,000/-(2,40,00,000 - 1,50,000)

Less indexed cost of acquistion & = Rs. 1,21,91,179improvements

Capital gains = Rs. 1,16,58,821Capital gain tax percentage = 20%Capital gain tax 0.2 x 1,16,58,821 = Rs. 23,31,764/- (3)

4. Deductions :

Brokerage = Rs. 1,00,000

Society transfer for charges = Rs. 50,000

Total = Rs. 1,50,000/- (4)

5. The assessee is liable for paying capital gains. (5)

Exercise 8 :

Gift from the year 2000 a flat of carpet area of 80 sq.m. purchased by his uncle in 1981 for a price of Rs. 2,40,000/-. Flat was transferred in the name of A in the year June 2001. Assessee started using the flat in 2000 only. In 2005, he carried out substantial improvement works inside the flat by spending a total sum of Rs. 15,00,000/-.

Flat was sold by A in the month of February 2018 for a total price of Rs. 2,40,00,000/-.

Prevailing rate of similar ownership flats in the locality in April 2001 was Rs. 40,000/sq.m.

1. Which of the following statement is false?a) Cost of acquisition to the assessee is Rs. 2,40,000/-b) Capital gain tax would be levied at the rate of 20%c) The assessee is entitled to deduct index cost of improvementd) The assessee is liable to pay capital gain tax in the matter

Ans : (a)

2. Which of the following statement is true?a) Cost of acquisition to the assessee is Rs. 32,00,000/-b) Cost of acquisition to the assessee is Rs. 2,40,000/-c) The assessee is entitled to deduct index cost of improvementd) The assessee is not liable to pay in the matter since it was received by hisas gift80 sq.m. x Rs. 40,000 / sq.m. = Rs. 32,00,000/-

Ans : (a)

3. What will be the indexed cost of flat sold in 2018 for the purpose of calculating gaintax by the assessee A if cost of inflation index for the financial year 2017 / 2018 is272 for the years 2001 / 2002 it was 100

a) Rs. 32,00,000/- b) Rs. 87,04,000/-c) Rs. 6,52,800/- d) Rs. 62,00,000/-

Indexed cost of flat = 32,00,000 x (272 / 100)= Rs. 87,04,000/-

Ans : (b)

4. What will be the indexed cost of improvement works carried out in the flat for costinflation index for the year 2005 / 2006 was 117 and 2018 is 272

a) Rs. 34,87,179/- b) Rs. 40,87,179/-c) Rs. 15,00,000/- d) Rs. 30,00,000/-

Indexed cost of improvement = 15,00,000 x (272 / 117)carried out in 2005

= Rs. 34,87,179/-Ans : (a)

5. What will be the deduction permissible to the assessee while computing capitalgain from the sale price of flat under capital gain tax provision if assessee hasspent Rs. 1,20,000/- for the brokerage charges and Rs. 25,000/- paid to the societyfor transfer charges

a) Rs. 87,04,000/- b) Rs. 1,23,36,179/-c) Rs. 1,21,91,179/- d) Rs. 1,45,000/-

34,87,179 + 87,04,000 + 1,20,000 + 25,000 = Rs. 1,23,36,179/-Ans : (b)

6. What was the total capital gain tax 20% rate if assessee has not invested salesproceeds anywhere

a) Rs. 48,00,000/- b) Rs. 30,60,000/-c) Rs. 23,32,764/- d) Rs. 40,00,000/-

2,40,00,000 - 1,23,36,179 = Rs. 1,16,63,821/-Capital gain tax @ 20% is = Rs. 23,32,764/-

Ans : (c)

Exercise 9 :

On 04.01.2005, a property was acquired by Mr. X for 8.08 lakhs. InJune 2010, improvements were made for 12.06 lakhs. On28.08.2018, the property was sold to 83 lakhs. (113, 167, 280 arethe cost inflation index for 2004 - 05, 2010 - 11, 2018 - 19respectively).

Questions :1. What is the Indexed cost of acquisition?2. What is the indexed cost of improvement?3. What is the total cost of acquisition & improvement?4. What is the taxable capital gain?5. What is the tax to be paid by Mr. ‘X’?6. If the property is owned by a company, what is the capital gain tax?

Calculations :


Cost of acquisition (01/2005) = Rs. 8,08,000


Date of transfer = 28.08.2018 (2018 - 19)

Sale consideration = Rs. 83,00,000




1. Indexed cost of acquisition = 8,08,000 x (280/113)

= Rs. 20,02,124/- (1)

2. Indexed cost of improvement = 12,06,000 x (280/167)

= Rs. 20,22,036/- (2)

3. Total indexed cost of acquisition = 20,02,124 + 20,22,036& indexed cost improvement

= Rs. 40,24,160/- (3)

4. Taxable capital gain = 83,00,000 - 40,24,160

= Rs. 42,75,840/- (4)

5. Tax in the hand of Mr. ‘X’ - 20% = 0.2 x 42,75,840

= Rs. 8,55,168/- (5)

6. If it is owned by a company, = 0.4 x 42,75,840

tax - 40%

= Rs. 17,10,336/- (6)

Answers :

1) Rs. 20,02,124/- 4) Rs. 42,75,840/-

2) Rs. 20,22,036/- 5) Rs. 8,55,168/-

3) Rs. 40,24,160/- 6) Rs.17,10,336/-

Exercise 10 :

On 11.06.2004, a property was acquired by Mr. X for 9.49 lakhs. In August 2012, improvements were made for 14.76 lakhs. On 01.04.2017, the property was sold to 67 lakhs. 113, 200, 272 are the cost inflation index for 2004 - 05, 2012 - 13, 2017 – 18 respectively.

Questions :


2. What is the indexed cost of improvement?

3. What is the total indexed cost of acquistions &

improvement?


Calculations :


Cost of acquisition = Rs. 9,49,000/-


Date of transfer = 01.04.2017 (2017 - 18)

Sale consideration = Rs. 67,00,000





Indexed cost of improvement= 14,76,000 x 272/200= Rs. 20,07,360/- (2)

Total indexed cost of acquisition = 22,84,319 + 20,07,360& improvement

= Rs. 42,91,679/- (3)


Answers :

1) Rs. 22,84,319/- 3) Rs. 42,91,679/-2) Rs. 20,07,360/- 4) Rs. 24,08,321/-

Exercise 11 :

On 10.10.1982, Mr. X acquired a property consisting of 3,000sq.ft. of plot and 4,500 sq.ft. of building in Chennai for a costof Rs.10,00,000/-. On 31.03.2017, he sold his property for asale consideration of Rs. 2,00,00,000/-. 109 & 1125 are thecost inflation index for 1982 - 83 & 2016 - 17 respectively.

Questions :

1. What will be the indexed cost of acquisition?

2. What is the capital gain?

Calculations:

Date of acquisition = 10.10.1982 (1982 - 83)Cost of acquisition = Rs. 10,00,000C.I.I. for 1982 - 83 = 109Date of transfer = 31.03.2017 (2016 - 17)C.I.I. for 2016 - 17 = 1,125

1) Indexed cost of acquisition = 10,00,000 x 1125/109= Rs. 1,03,21,100/- (1)

2) Capital gain = 2,00,00,000 - 1,03,21,100= Rs. 96,78,900/- (2)

Answers :1) Rs. 1,03,21,100/- 2) Rs. 96,78,900/-

Exercise 12 :

An individual owned property was originally acquired in 01.10.1972 for Rs. 45,000/-. The fair market value of the property as on 01.04.2001 is 5.25 lakhs. On 01.04.2017, this property was sold for a sale consideration of Rs. 25,05,000/-. 100, 272 are the costinflation index for 2001 - 02 & 2017 - 18.

Questions :



Calculations :

Date of acquisition = 01.10.1972Cost of acquisition = Rs. 45,000Fair market value as on 1.4.2001 = Rs. 5,25,000 (2001 – 02)as worked out

Date of transfer = 01.04.2017 (2017 - 18)Sale consideration = Rs. 25,05,000Cost inflation index 2001 - 02 = 100Cost inflation index 2017 - 18 = 272



Answers :1) Rs. 14,28,000/- 2) Rs. 10,77,000/-

APARTMENTS & J V RATIOExercise 1 :i) In a plot of 3,000 sq.ft., 3 flats of same built up area 1,500 sq.ft each are

constructed. What is the Undivided share (UDS) of land for each flat?ii) If 3 flats of 1,500, 800, 700 are constructed in the plot of 3,000 sq.ft., what

is the UDS of land for 1,500 sq.ft. of flat?

i) Built up area = 3 x 1,500 = 4,500 sq.ft.Plot area = 3,000 sq.ft.FSI = 4,500/3,000 = 1.5UDS = 1,500 / 1.5 = 1,000 sq.ft.

ii) Built up area = 1,500 + 800 + 700 = 3,000 sq.ft.Plot area = 3,000 sq.ft.FSI = 3,000/ 3,000 = 1UDS for = 1,500 / 1 = 1,500 sq.ft.1,500 sq.ft. flat

Exercise 2 :

Land rate = Rs. 5,500 / sq.ft. FSI is 2. Building unit rate isRs.2,000/sq.ft. Assuming the promoter’s profit as 20%, what isthe composite rate?

Prevailing land rate = Rs. 5,500 / sq.ft.

FSI = 2

Land component = 5,500 / 2 = Rs. 2,750

Building rate = Rs. 2,000

Land + building component = Rs. 4,750

Add promoter’s profit, 20% = Rs. 950

Composite unit rate = Rs. 5,700/-

Exercise 3 :

In an apartment building, the sum of the plinth area of all the flats is 5,000 sq.ft. Common area is 500 sq.ft. The super plinth area is 5,500 sq.ft. What is percentage of common area in the apartment building?

Sum of plinth area of all flats = 5,000 sq.ft.

Common area = 500 sq.ft.

Percentage of common area = (500/ 5000) x 100

= 10%

Exercise 4 :

An apartment building consists of 12 flats of super built uparea 1,050 sq.ft. The net monthly rent of a flat is Rs. 9,000.The prevailing rate of return is 2.5%. Find the approximatevalue of one flat by rent capitalisation method.

Net monthly rent = Rs. 9,000

Yearly rent = Rs. 1,08,000

Rate of return = 2.5%

Value = 1,08,000 x 100/2.5

= Rs. 43,20,000/-

Exercise 5 :In a plot of 3,600 sq.ft., an apartment building of GF + 2 is existing. 3 flats of 600, 800, 1000 are existing in one floor. What is the UDS of land for i) flat 600 sq.ftii) flat 1,000 sq.ft.?

Built up area = (600 + 800 + 1000) x 3 = 7,200 sq.ft.Plot area = 3,600 sq.ft.FSI = 7,200 / 3,600 = 2UDS = 600 / 2 = 300 sq.ft.

= 1,000 / 2 = 500 sq.ft.

Exercise 6 :

In a plot of 8,608 sq.ft., the landlord Mr. ‘X’ intends to construct an apartment through joint venture for a total built up area of 17,216 sq.ft. There will be 16 flats of super built up area of 1,076 sq.ft. The prevailing market rate for plot is Rs.10,000 per sq.ft. and the guideline rate is Rs. 20,000 per sq.ft. The building construction rate is Rs. 2,500/-. Assume the promoter’s profit as 20%.

Questions :1. What is FSI?2. What is the undivided share (UDS) for each flat?3. What is the composite rate?4. What is the selling price of each flat?5. What is Joint venture Ratio? (Promoter : Landlord)6. Whether there is any impact of Guideline rate while fixing the

composite rate and joint venture ratio?

Data :

Extent of plot = 8,608 sq.ft.

Proposed builtup area = 17,216 sq.ft.

No. of flats proposed = 16

Built up area of each flat = 1,076 sq.ft.

Market rate of plot = Rs. 10,000/sq.ft.


Building construction rate = Rs. 2,500/sq.ft.

Promoter’s profit = 20%

Calcluations :

1. Total built up area = 17,216 sq.ft.Extent of plot = 8,608 sq.ft.FSI 17,216 / 8,608 = 2 (1)

2. Super built up area of one flat = 1,076 sq.ft.FSI = 2UDS of a flat 1,076 / 2 = 538 sq.ft. (2)

3. Land component 10,000 / 2 = Rs. 5,000Building rate = Rs. 2,500Land rate + Building rate = Rs. 7,500Add 20% for promoter’s profit = Rs. 1,500Composite rate = Rs. 9,000 / sq.ft. (3)

4. Super built up area of one flat = 1,076 sq.ft.Composite rate = Rs. 9,000/sq.ft.Selling price 1,076 x 9,000 = Rs.

96,84,000/- (4)

5. Landlord’s share 10,000/2 = Rs. 5,000Promoter’s share = Rs. 2,500Total - Land lord + developer = Rs. 7,500Landlord’s percentage share = 5,000/7,500 = 67%

Promoter’s percentage share = 2,500/7,500 = 33%

Joint venture Ratio is = 33 : 67 (5)

6. Guideline rate is meant for fixing stamp duty only and hence plays no role while fixing the composite rate and joint venture ratio. (6)

Exercise 7 :

In a plot of 8,000 sq.ft., the promoter has constructed an apartment building of super built up area 20,000 sq.ft. It consists of 16 flats of super plinth area 1,000 sq.ft. and 8 flats of super plinth area of 500 sq.ft. The market rate of plot is Rs. 6,000/sq.ft. and the guideline rate is Rs. 7,500/sq.ft. The building rate is Rs. 2,500/sq.ft. The promoter’s profit is 15%.

Questions :

1. What is FSI?

2. What is UDS for 1,000 sq.ft. of flat?

3. What is UDS for 500 sq.ft. of flat?

4. What is the composite rate for the flat?

5. Assuming a common area of 4,000 sq.ft., what is the common area

percentage?

6. What is the joint venture ratio?

Data :

Extent of plot = 8,000 sq.ft.


Number of flats = 16 + 8

Builtup area of each flat = 1,000 sq.ft + 500 sq.ft.

Market rate of plot = Rs. 6,000/sq.ft.

Guideline rate = Rs. 7,500/-

Building rate = Rs. 2,500/-


Calculations :

1. Total built up area = 20,000 sq.ft.


FSI - 20,000 / 8,000 = 2.5 (1)

2. UDS for 1,000 sq.ft. of flat = 1,000/2.5 = 400 sq.ft.(2)

3. UDS for 500 sq.ft. of flat = 500/2.5 = 200 sq.ft. (3)

4. Land component = 6,000/2.5

= Rs. 2,400

Building component = Rs. 2,500

Land & Building component = Rs. 4,900

Promoter’s profit 15% = Rs. 735

Composite rate = Rs. 5,635/- (4)

5. Total super built up area of all flats = 20,000 sq.ft.

Common area = 4,000 sq.ft.

Plinth area of all flats = 16,000 sq.ft.

Common area percentage = 4000/16000

= 25% (5)

6. Joint venture ratio

Land rate = Rs. 6,000

FSI = 2.5

Land component = 6,000/2.5

= 2,400

Building component = 2,500

Land & Building = 4,900

Promoter’s ratio = 2,500/4,900

= 0.51 (51%)

Landlord’s share = 2,400/4,900

= 0.49 (49%)

Joint venture Ratio - (Promoter : Lordlord) = 51 : 49 (6)

Exercise 8 :

It is an apartment building with GF + 2 floors. Mr. ‘X’ hasbooked a flat (1,320 sq.ft.). UDS (Undivided share) of land is660 sq.ft. The composite rate is Rs.6,000/sq.ft. The land rate isRs. 5,000/sq.ft. Sale deed for UDS of land has been executed(Rs. 33,00,000/-) and the builder’s agreement has beensigned. Total value of the flat on completion is 1,320 x 6,000 =Rs.79,20,000/-. Mr. X has applied loan from a bank. The bankdirects the valuer to certify the value in stages (break up forRs. 77,20,000 : Land UDS (660) = Rs. 33,00,000/- and Building(1,320) = Rs. 46,20,000/-).

Questions :

1) Before commencement of the building construction, what is the stage value?

2) Mr. X has booked a flat (1,320 sq.ft.) in first floor. Basement completed (18%). UDS sale deed executed. What is the stage value?

3) Mr. X has booked a flat in first floor (1,320 sq.ft.). Frame works of all floors completed. RCC roof for all the floors has been cast. For the concerned flat in FF, brick work has been completed, doors & windows frames have been fixed, inside plastering of walls and ceiling finish have been completed. Percentage of works completed is 75%. What is the stage value?

4) Construction is fully completed in all respects. Flat is fit for use. What is the value to be certified?

5) Mr. Y has booked a flat in 3rd floor. RCC columns have been raised upto second floor. What is the stage value?

6) What is the cost to be certified on completion for the purpose of income tax?

Data :

Number of floors = 3

UDS = 660 sq.ft.

Composite rate = Rs. 6,000/sq.ft.


Sale deed for 660 sq.ft. of UDS = Rs. 33,00,000/-

Value of flat on completion = Rs. 79,20,000/-

Calculations :1) UDS of land has been executed..

the value = 660 x 5,000 = Rs. 33,00,000/- (1)

2) UDS 660 x 5,000 = Rs. 33,00,000Building - 0.18 x 46,20,000 = Rs. 8,31,600Total stage value = Rs. 41,31,600/- (2)

3) UDS of land = 660 x 5,000 = Rs. 33,00,000Building = 0.75 x 46,20,000 = Rs. 34,65,000Total stage value = Rs. 67,65,000/- (3)

4) Composite rate = Rs. 6,000 / sq.ft.

Built up area = 1,320 sq.ft.

Value on completion = 1,320 x 6,000

Value to be certified = Rs. 79,20,000/- (4)

5) UDS of land = 660 x 5,000 = Rs. 33,00,000

Value upto basement (18%) = Rs. 8,31,600

Total stage value = Rs. 41,31,600/- (5)

6) The cost to be certified for the = Rs. 79,20,000/- (6)

Exercise 9 :

It is a joint venture proposal. The landlord is having a plot of8,250 sq.ft. and he wishes to construct an apartment for anFSI of 2. The land rate is Rs. 5,000/sq.ft. A promoter hasapproached the landlord for developing an apartment forwhich the unit rate of construction is Rs. 2,500/-.

Questions:

1. What will be the promoter’s share?

2. What will be the landlord’s share?

Data :

Proposal for = Joint venture

Plot area owned by landlord = 8,250 sq.ft.

FSI proposed = 2


Unit rate of construction = Rs. 2,500/-

Calculations :

Land rate = Rs. 5,000 / sq.ft.

FSI = 2

Land component = 5,000 / 2 = Rs. 2,500

Building rate = Rs. 2,500

Land + building = Rs. 5,000

Promoter’s share = (2500/5000) x 100

= 50% (1)

Landlord’s share = 2500/5000) x 100

= 50% (2)

Exercise 10 :

An apartment building consisting of 70 flats of equal superbuilt up area of 1,000 sq.ft. each is proposed to beconstructed on a land of 35,000 sq.ft. 10% of the area of landhas to be left as OSR (Open Space Reservation) and separatedeed has to be executed in favour of the corporation.

Question :

1) What is the UDS for each flat?

Data :Number of flats proposed = 70 Nos.Built up area of each flat = 1,000 sq.ft.Land area = 35,000 sq.ft.OSR = 10%

Calculations :Super built up area of one flat = 1,000 sq.ft.Super built up area of seventy flats = 70,000 sq.ft.Extent of land = 35,000 sq.ft.FSI : 70,000 / 35,000 = 2Percentage to be left for OSR = 10%Area of land to be left for OSR = 3,500 sq.ft.

Net extent of land left with the = 31,500 sq.ft.Promoter 35,000 - 3,500

FSI now : 70,000 / 31,500 = 2.22UDS for 1,000 sq.ft. of flat (31,500/70) = 1,000 / 2.22

= 450 sq.ft.

Exercise 11 :

Mr. ‘X’ is having a commercial building of 20,000 sq.ft.situated in a plot of 10,000 sq.ft. He wants to sell one shop ofplinth area 1,000 sq.ft. to Mr. ‘Y’. He approaches a valuer tosuggest him the UDS of land of the shop for the purpose ofexecuting a sale deed in favour of ‘Y’. The common areapercentage is 10%.

Question :

1. What is the UDS of land?

Data :Plot area = 10,000 sq.ft.Built up area of building = 20,000 sq.ft.Plinth area of 1 shop = 1,000 sq.ft.Common area of 1 shop = 10%

Calculations :

Building area = 20,000 sq.ft.Plot area = 10,000 sq.ft.FSI = 20,000 / 10,000 = 2Plinth area of shop = 1,000Common area percentage = 10%Super builtup area = 1,000 x 1.1 = 1,100 sq.ft.

UDS = Super builtup area/ FSI= 1,100/2= 550 sq.ft.

Exercise 12 :

An apartment of built up area of 25,000 sq.ft. is proposed tobe constructed in a land of 12,500 sq.ft. Prevailing market rateof land is Rs. 10,000/sq.ft. Unit rate of construction is Rs.3,000/sq.ft. Assume the profit of the promoter as 25%.

Question :

1. What is the composite rate of the flat?

Data :


Land area = 12,500 sq.ft.


Rate of construction = Rs. 3,000/sq.ft.


Calculations :

Built up area = 25,000 sq.ft.Plot area = 12,500 sq.ft.FSI = 25,000 / 12500 = 2

Prevailing market rate of plot = Rs. 10,000Land component = Land rate / FSI

= 10,000/2= Rs. 5,000

Building rate = Rs. 3,000 / sq.ft.Land & Building (5,000 + 3,000) = Rs. 8,000Add promoter’s profit 25% = Rs. 2,000Composite rate = Rs. 10,000/-

Exercise 13 :

A landlord has a plot of 15,000 sq.ft. A promoter hasapproached the landlord for a joint venture stating that hewishes to construct an apartment building for 30,000 sq.ft.The prevailing market rate of land is Rs. 14,000/sq.ft. and theguideline rate is Rs. 24,000/sq.ft. The construction cost is Rs.3,000/sq.ft.

Question :

1. What is the Joint Venture ratio (Promoter : Landlord)?

Data :


Proposed building area = 30,000 sq.ft.


Guideline rate = Rs. 24,000/-

Construction cost = Rs. 3,000/-

Calculations :

Plot area = 15,000Building area = 30,000FSI = 30,000/15000 =2

Land rate = Rs. 14,000FSI = 2Proportionate land rate for the =14000/2 = 7000purpose of joint venture (landlord)

Building rate (Promoter) = Rs. 3,000Landlord + Promoter = Rs.10,000

Promoter’s share = (3,000/10000) x 100 = 30%

Landlord’s share = (7000/10000) x 100 = 70%

Ratio - Promoter : Landlord = 30 : 70

MISCELLANEOUS TOPICS

Exercise 1 :

What is the amount of Rs. 5,000 at the end of 5 years @ 5% compound interest per annum?

Amount A = P ( 1 + r/100 )n

= 5,000 ( 1 + 5/100)5

= 5,000 x (1.05)5

= 5,000 x 1.276

= Rs. 6,380/-

Exercise 2 :

In 2013, a valuer valued a residential property in a mofusil town for Rs. 68.56 lakhs.

Assuming an annual escalation of 10% per year, what will be the value of the property as

on 2018 by applying the formula?

P = Rs. 68.56 lakhsr = 10%n = 2018 - 2013 = 5 years

Amount A = P ( 1 + r/100)n

= 68.56 ( 1 + 10/100 )5

= 68.56 x (1.1)5

= 68.56 x 1.6105= Rs. 110.42 lakhs

Exercise 3 :

Mr. X is selling 2,400 sq.ft. of plot to Mr. Y for a mutuallyagreed amount of Rs. 24,00,000. But in sale deed, theymention as Rs. 12,00,000/-. Guideline rate is Rs. 510/-. Whatis the intrinsic value?, What is the agreement value? & Whatis stamp duty value?

a. Intrinsic value = Rs. 24,00,000/-

b. Agreement value = Rs. 12,00,000/-

c. Stamp duty value = 2,400 x 510

= Rs. 12,24,000/-

Exercise 4 :

A machine was purchased for Rs. 1,00,000/- @ 15% depreciation ofSLM. What is the written down value after 2 years?

Depreciated for 1 year by = Rs. 1,00,000 x 15Straight line method

= Rs. 15,000/year

Deprecited value after 1 year = 1,00,000 - 15,000= Rs. 85,000/-

Depreciated value after 2 years = 85,000 - 15,000= Rs. 70,000/-

Written down value after 2 years = Rs. 70,000/-

Exercise 5 :

A property has a net income of Rs. 30,000/-. One appraiser decides to use a12 percent capitalisation rate, while a second appraiser uses a 10 percentrate. What is the difference in appraisal value of the two valuers?

First appraiser :Capitalised value = 30,000 x 100/12

= Rs. 2,50,000/-

Second appraiser :Capitalised value 30,000 x 100/10

= Rs. 3,00,000/-

By using a higher rate of return, the value is decreased by Rs. 50,000/-.

Exercise 6 :

The net income was reported at Rs. 21,000/- and the property was sold for Rs. 3,00,000.

What capitalisation rate is applied to this sale?

Capitalised value = Rs. 3,00,000/-

Net income = Rs. 21,000/-

Capitalised value = (Net income/X) x 100

3,00,000 = (21,000/X) x 100

X = (21000 x 100)/300000

= 7%

Exercise 7 :A mobile phone was purchased for Rs.50,000/-. Its salvage value is Rs. 10,000. Total life time use 60,000 hours. Used time 20,000 hours. What is the depreciation of the cell phone?

Phone purchased for = Rs. 50,000/-Salvage value = Rs. 10,000/-Net value = Rs. 40,000/-Used time = 20,000 hoursTotal life = 60,000 hoursDepreciation = 20,000 / 60000

= 1/ 3

Depreciation value = 40,000/3= Rs. 13,333/-.

Exercise 8 :

In a situation, subject land is located in such a place where,instances of sale of large size plots in the locality are notavailable. Small sized road side developed plots are availableat the rate of Rs. 300 per sq.m. Plot is located in developingarea of town where demand for housing site exists. Thesubject land is not surrounded by agricultural lands. Thesubject plot is of sufficiently large size which can be dividedinto several small size plots. The depth of the plot is 450meters considerably more as compared to the road frontageof 150 meters.

Questions :

1. What is value of 1st portion from road side if the plot is considered as 50 metres in

depth in Rs.?

a) Rs. 22,50,000/- b) Rs. 20,50,000/-

c) Rs. 15,00,000/- d) Rs. 18,75,000/-

2. What is value of 2nd portion from road side if the plot is considered as 100 metres

in depth and rate considered for 40 per cent lesser than the 1st one in Rs.?

a) Rs. 27,00,000/- b) Rs. 8,00,000/-

c) Rs. 30,00,000/- d) Rs. 45,00,000/-

3. What is value of 3rd portion from road side if the plot is considered as rest of the

plot and rate considered for 40 per cent lesser than the 2nd one in Rs.?

a) Rs. 32,40,000/- b) Rs. 14,40,000/-

c) Rs. 21,60,000/- d) Rs. 54,00,000/-

4. What is the value of entire land?

a) Rs. 98,10,000/- b) Rs. 88,10,000/-

c) Rs. 78,10,000/- d) Rs. 68,10,000/-

5. As Gujarat HC said this method of valuation is arbitrary & artificial, instead of that which method of valuation is accepted in case of huge plot area to be valued?

a) Plotting scheme method

b) Sales comparison method

c) Net present value method

d) Transfer of development right method

1. Area of I portion = 50 x 150 = 7,500 sq.m.Unit rate = Rs. 300/m2Value of I portion = 7,500 x 300 = Rs. 22,50,000/-

Ans : “a”

2. Area of II portion = 100 x 150 = 15,000 sq.m.Unit rate = 40% less then I portion(0.6 x 300 = 180/sq.m.)

Value of II portion = 15,000 x 180 = Rs. 27,00,000/-

Ans : “a”

3. Area of III portion = 300 x 150 = 45,000 sq.m.Unit rate = 40% less than II portion(0.6 x 180 = Rs. 108/sq.m.)

Value of III portion = 45,000 x 108 = Rs. 48,60,000/-

Ans : “a”

4. Value of I portion = Rs. 22,50,000Value of II portion = Rs. 27,00,000Value of III portion = Rs. 48,60,000Value of all portions = Rs. 98,10,000/-

Ans : “a”

5. Ans “a” - Plotting scheme method.

Documents

CASE STUDIES - Council Of Engineers And Valuers2018/11/29 · CASE STUDIES PREPARED BY: Mr. Vimal K. Shah (9426159641) [email protected] Mrs. Kavvita N.Choksi (9512333666) [email protected]