Valuations – the Education Sector
Academy Conversions – Valuation Requirements
The process of conversion from school to academy includes the new academy taking responsibility for its own financial accounts and insurance from the local authority. Part of this process requires the academy to provide values for buildings and contents, both for insurance and accounting purposes. Following the move from local authority control, these will not be available unless new valuations are obtained from a chartered valuation surveyor familiar with the process.
The valuation process involves a site survey of the land and buildings to record site areas, site layout and location, building floor areas, descriptions, age and condition. Further office based investigations are then required to ascertain planning and listed building status, land values, replacement costs and tenure details.
For other fixed assets such as general contents and computer installations there will be a need to prepare an inventory on a departmental basis. Model and serial numbers of machines are taken if required and the age and condition of all contents is noted.
The newly converted academy will require at least two valuation types:
Insurance Valuations – Buildings, Contents and Computers
The requirements for adequate insurance cover vary between academies dependent on their circumstances. An example is that of a standard lease between local authority and academy for 125 years. Here the academy, as tenant, covenants to insure the premises against loss or damage by risks specified in the lease e.g. fire loss, for the reinstatement value (cost) of the property. Typically reinstatement is defined as:
“The cost of rebuilding a property, or in the case of other property its replacement by similar property, in either case in a condition equal to but not better or more extensive than its condition when new”.
The reinstatement figures should also include, in the case of buildings which may require rebuilding following a fire, demolition and debris removal costs, temporary works to ensure the safety of the public and any adjoining buildings; professional fees; and additional costs of complying with the reasonable requirements of public and other statutory authorities. The reinstatement figure adopted to cover contents and computer installations should probably include only debris removal costs.
Financial Accounting Valuations – Land, Buildings, Contents and Computers
On conversion the academy, as a company, is required to record in its annual accounts suitable values for land, buildings and other fixed assets.
Chartered valuation surveyors are required to conform to the RICS Valuation Professional Standards 2014 which regulate the approach to valuations for financial accounting purposes. Briefly the approach to the valuation of the various asset classes is as follows:
The land forming the site of the academy buildings is valued on a Market Value basis where the valuer differentiates between the higher value of the land on which the academy buildings stand and the lower value of land used for recreational purposes.
The Professional Standards define Market Value as follows:
“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.
The Valuation Standards stipulate that academy buildings, being of a type not usually sold in the open market, are to be valued using a depreciated replacement cost method. It should be noted that the accounting valuation is based on the replacement cost of a modern equivalent, which may vary considerably from the insurance replacement cost of the existing buildings. The definition in the Valuation Standards is as follows:
‘The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation”.
Academy Contents and Computers
Academy contents and computers are valued on the basis of Value of Plant and Equipment to the Business (VPMB) as defined in the Professional Standards referred to earlier.
In broad terms the valuer will establish Value to the Business by assessing the gross current replacement cost of similar assets. This replacement cost is then depreciated to reflect the value attributable to the remaining portion of the total useful economic life, otherwise referred to as the net current replacement cost.
The valuation of academy assets for insurance and financial statements is a project for specialist Chartered Valuation Surveyors who are familiar in broad terms with the process of conversion from secondary or primary school to academy.
The valuation surveyor will carry out the valuation from information gathered at the academy based on physical inspection of the assets which, dependent upon on the size of the academy, often takes no more than one day.
Further information on this subject can be obtained from Arthur Broadhurst.
About Thornburn & Company:
Thornburn & Company are Chartered Valuation Surveyors providing the highest standards of excellence in professional valuation services across a wide range of industries for more than 50 years.
For more information contact:
Tel: +44 (0) 161 833 0033
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