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LECTURE 1

What is estimate?
Before execution of a given work, the owner or builder should have a detail knowledge about the volume of work that can be completed within the limit of his funds or the probable cost that may be required to complete the proposed work. It is therefore necessary to prepare the probable cost or estimate for the proposed work from its plan & specification. Otherwise, it may so happen that the work has to be stopped before its completion due to the shortage of funds or of materials. Besides the above, an estimate for any public construction work is required to be prepared & submitted beforehand so that sanction of necessary funds may be obtained from the authority concerned. So estimation for any construction work may be defined as the process of calculating the quantities & costs of the various item required in connection with the work. It is prepared by calculating the quantities from the dimensions on the drawing for various item required to complete the project & multiplied by unit cost of the item concerned.

Purpose of estimating
1. To ascertain the necessary amount of money required by the owner to complete the proposed work. For public construction works estimates are required in order to obtain administrative approval allotment of funds & technical sanction. 2. To manage quantities of materials required in order to their timely procurement. To procure controlled materials, if any, like cement, steel etc.; quantities of such materials are worked out from the estimate of the work & attached with the application for verification. 3. To calculate the no. of different categories of workers that are to be employed to complete the work within the scheduled time of completion. 4. To access the requirements of tools, plants & equipment required to complete the work according to the programme. 5. To decide the completion period from the volume of works involved in the estimate. 6. To invite tenders and prepare bills of payment. 7. An estimate for an existing property is required for valuation.

Type of estimates
1. 2. 3. 4. 5. 6. 7. 8. A detail estimate. A preliminary or approximate or rough estimate. A quantity estimate / quantity survey. A revised estimate. A supplementary estimate. Revised estimate & supplementary estimate due to reduction of cost. A complete estimate. Annual maintenance or repair estimate.

Detailed estimation
This includes the detailed particulars for the quantities, rates & costs of all the items involved for satisfactory completion of a project. Quantities of all items of work are calculated from their respective dimensions on the drawing, on a measurement sheet. Multiplying these quantities by their respective rates in a separate sheet, the cost of all items of work are worked out individually & then summarised. In addition to the above cost other expanses required to complete the project are added to the above cost to frame the total of a detail estimate. A detailed estimate is comprise of i. ii. iii. iv. v. Report, Specification, Detailed drawing showing plans, different sections, key or index plan, Design data & calculation, Basic rates adopted in the estimate. Page | 2

How to prepare a detail estimate?

The unit quantity method is followed to prepare a detailed estimate. In this method the rates per unit work of one item (such as 1 m3 concrete) including profit are considered first and the total cost for the item is found, by multiplying the cost per unit of the rate by the no. of units. The procedure for the preparation of a detailed estimate is divided into two parts (a) Details of measurement & calculation of quantities is the 1st part. Respective measurements for dimension of all individual items involved in the whole work are taken off from the drawing of the work & entered in the respective columns of a standard Measurement Form as shown below. Multiplying item wise respective dimensions quantities of all items are worked out in the measurement form. MEASUREMENT FORM Item no. Description or particulars No. Length Breadth Height or Depth Content Quantity or

(b) Abstuct of estimation cost is the 2nd part in the preparation of a detailed estimate. The cost of each and every individual item of work is calculated by multiplying the quantity computed in the measurement form with the specified rate in the tabular form known as Abstuct Form as shown below and are added all together to get the actual estimated cost of work. This estimated cost is increased by 3% to 5% for any unforeseen expenditure and is called contingency fund. A further amount of 2.5% maintain for supervising staff at the work site and called work charged establishment. ABSTRUCT FORM OR ESTIMATE FORM Sl no. Description Quantity Unit or Particulars 1 Rate Rs. P. Unit of Rate Amount Rs. P.

Contingencies
The term contingencies indicates the incidental expenses of a miscellaneous character which cannot be reasonably predict during preparation of the estimate and to meet such unforeseen expenses an additional amount of 3% to 5% of the estimated cost of works is provided in the total estimate.

Schedule of Rates
To facilitate the preparation of estimate and also to serve as a guide in settling rates in connection with contract agreements, a schedule of rates for each kind of work commonly executed (works, materials, wages of labour, transport etc.) should be maintained by different engineering departments or authorised organizations & kept up to date. This is prepared on the basis of rates prevailing in each locality including the cost of transport & profit. All rates should be inclusive of labour, materials, & other charges may have to incur by the contractor for getting the respective items of works executed to proper order & complete and finish.

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LECTURE 2 Approximate estimate

Approximate estimate or preliminary or rough estimate is made to find out an approximate cost in a short time. Such an estimate is prepared adopting different methods for different types of works. During preparation of the estimate detailed surveying, design, drawings etc. are not required. This estimate is prepared after preliminary investigation, preliminary surveying & where required sub soil investigations, & tests to determine the safe bearing capacity may be conducted. A line sketch of the project according to its requirements may be required. Rates are determined either from practical knowledge or from records for similar works. Approximate estimate for main parts of a project as for buildings, services like sanitary, water supply, drainage are made separately. At the end of general abstract of cost is drawn. Provision of contingency @ 5% to 10% is added with the abstract which is total approximate cost of the project.

Purpose of an approximate estimation

An approximate estimate is worked out before preparation of a detailed estimate of a work or a project to serve mainly for the following purpose I. To investigate feasibility An approximate estimate of a project gives an idea for the probable expenditure in a short time. From the outline idea of expenditure the practicability to take up such project considering availability of fund can be ascertained. To save time and money Before having any rough idea of financial implications if detailed drawing, spending much time, labour & money and finally the project is rejected due to unexpected difference between the amount of a detailed estimate & the availability of fund, then the entire time and money are lost. So it is a general procedure a preliminary estimate before drawing up detailed estimate for a project. To investigate benefit & comparison of cost with utility Where there is no paucity of funds but it is required to know readily whether the investment shall be ideal, then an approximate estimated cost of the project is drawn up & compared with the income or benefits availed from such expenditure. Adjustment of planning For unavoidable projects approximate estimates for a no. of alternatives for the original work after adjustment of sketch of the intention along with sketch reports are required for study.

II.

III.

IV.

Approximate methods of estimating for building

The following are the common methods used to estimate building and are described one by one for appropriate application according to the classification of buildings. i. ii. iii. iv. v. vi. vii. Plinth Area or Square-meter method Cubic rate or Cubic-meter method Approximate quantities with bill method Service Unit or Unit rate method Bay method Cost comparison method Cost from materials & labour

Plinth area or square-meter method

To prepare an estimate by this method the plinth area of a building shall be determine first. But plinth area may also have to be worked out from floor area or carpet area or covered area or rentable area of a building. So all the terms are described below one by one. Similarly the circulation area should be known in order to calculate the plinth area of a building. Page | 4

Plinth area
The plinth area is the built up covered area measured at the floor level of the basement or of any storey of a building. Plinth area can be calculated by taking the external dimension of the building excluding plinth offsets. Plinth area shall be calculated including the following i. ii. iii. iv. v. vi. Area of the floor level excluding plinth offsets if any. Stair cover (mumty). Internal shaft for sanitary installations and garbage chute provided these dont exceeded 2m2 in area. Lift well including landing Machine room. Area of porch other cantilevered.

The following shall not be included in plinth area i. ii. iii. iv. Area of loft. Balcony Area of architectural feature, band, cornice etc. Area of vertical.

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LECTURE 3
1. PLINTH AREA
This is prepared on the basis of plinth area of building, the rate being deducted from the cost of similar building having similar specification, heights & construction, in the locality. Plinth area estimate is calculated by finding the plinth area of the building & multiplying by the plinth area rate. Some of the methods are to calculate the plinth area (i) Plinth area (ii) Floor area (iii) Carpet area (iv) Circulation area

(i)

Plinth area :

Plinth area is the built up covered area of building measured at floor level of any storey. Plinth area is calculated by taking the external dimensions of the building at the floor level excluding plinth offsets if any court yard, open areas, balconies and cantilever project are not included in the plinth area. Supported porches (other than cantilevered) are included in the plinth area. The following shall be included in the plinth area (1) (2) (3) (4) (5) All floors, area of wall at the floor level excluding plinth offsets, if any. Internal shafts for sanitary installations provided. These do not exceed 2m2 in area. Stair cover (mumty). Lift well including landing. Area of porch other than cantilevered. The following shall not be included in the plinth area Area of loft. Unclosed balconies. Area of architectural feature, band, cornice etc. Towers, domes projecting above the terrace level at terrace.

(1) (2) (3) (4)

(ii)

Floor area :
Floor area of a building is the total area of floor in between walls. The following shall be included in the floor area

(1) (2) (3) (4)

Door and other opening in the wall. Intermediate pillars & supports. Fire place projecting beyond the face of the wall in living or bedroom. Built in almirah, shelf appearing within a height of 2.2m from floor.

(iii)

Circulation area :

Circulation area is the floor area of verandahs, passages, corridors, balconies, entrance hall, porches, stair cases etc. which are used for movements of persons using the building.

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2. CUBE RATE ESTIMATE FOR BUILDING

Cubic rate estimate is preliminary estimate or an appropriate estimate, and is prepared on the basis of the cubical content of the building the cube rate being worked out from the cost of the similar building having similar specification and construction in the locality. This is calculated by finding the cubical content of the building (length* breadth* height) and multiplied it by the cube rate. The length and breadth should be taken as the external dimension of the building at the floor level and the height should be taken from the floor level to top of the roof. For storeyed building the height should be taken between the floor level of one storey to top of next higher floor. The foundation and plinth, and the parapet above roof are not taken into account in finding the cubical content.

3. APPROXIMATE QUANTITY METHOD ESTIMATE

In this method approximate total length of walls is found in running meter & this total length multiplied by the rate per running meter of wall gives a fairly accurate cost. For this method the structure may be divided into two parts i.e. (i) foundation including plinth, (ii) Superstructure. The running meter cost for foundation and superstructure should be calculated first and these running meter rate should be multiplied by the total length of wall. To find the running meter rate of foundation the approximate quantities of items such as excavation, foundation, brickwork upto plinth and damp proof course are calculated per running meter and by multiplying by the rates of these items, the price or rate per running meter is determined. Similarly, for super structure the price or rate per running meter is determined from the approximate quantities of brickwork, wood works, roof, floor finishing etc.

4. REVISED ESTIMATE
Revised estimate is a detailed estimate and is required to be prepared under any one of the following circumstances (i) (ii) (iii) When the original sanctioned estimate is exceeded or likely to exceed by more than 5%. When the expenditure on a work exceeds or likely to exceed the amount of administrative sanction by more than 10%. When there are material deviation from the original proposal, even though the cost may be met from the sanctioned amount.

The revised estimate should be accompanied by a comparative statement showing the variations of each item of works, its quantity, rate and cost under original and revised, side by side, the excess or saving and reason for variation.

5. SUPPLEMENTARY ESTIMATE
Supplementary estimate is a detailed estimate and is prepared when additional works are required to supplement the original works, or when for this development is required during the progress of work. This is a fresh detailed estimate of the additional works in addition to the original estimate. The abstract should show the amount of the original estimate and the total amount including the supplementary amount for which sanction is required.

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LECTURE 4
Different methods for estimating building works The quantities of various items such as earthwork in excavation, foundation concrete, brickwork in foundation and plinth, brickwork in superstructure, etc. can be estimated by any of the following methods (i) Long & short wall or out-to-out & in-to-in method (ii) Center line method

(i)

Long & short wall or out-to-out & in-to-in method

In this method the longer walls in a building are considered as long walls and measured from out-to-out; and the shorter or partition walls, in a perpendicular direction of the long walls are considered as short walls and are measured from in-to-in for a particular layer of work. These lengths of long & short walls are multiplied separately by the breadth and height of the corresponding layer and are added to get quantity. The simple method is to take the long walls and short walls separately and to find out the center to center lengths of long walls & short walls from the plan. For long walls add to the center length one breadth of wall, which gives the length of the wall out-to-out. Long wall length out-to-out = center to center length + half breadth on one side +half breadth on the other side = center to center length + one breadth For short wall subtract from the center length one breadth of wall, which gives the length in-to-in. Short wall length in-to-in = center to center length - half breadth on one side - half breadth on the other side = center to center length - one breadth

(ii)

Center line method

The total center line length of walls in a building is to be calculated and this should be multiplied by breadth and depth of respective item to get the total quantity. For different sections of walls in a building, the center line length for each type shall be worked out separately. In case of partition walls joining with the main walls, for each junction half breadth of the respective items is to be deducted from the total center length.

PROBLEM

The plan represents the plan of superstructure wall of a single room building of 5m* 4m, and sections represent the cross section of the wall with foundation. Estimate the quantities of (i) Earthwork in excavation in foundation. Page | 8

(ii) Concrete in foundation (iii) Brickwork in foundation & plinth. (iv) Brickwork in superstructure ANSWER : The length of long wall center to center = 5.0+ *0.3+ *0.3 = 5.3m The length of short wall center to center = 4.0+ *0.3+ *0.3 =4.3m

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Details of measurement and calculation of quantities

Item no Particulars No Length Breadth Height Quantity

Remark

of items
1. Earthwork in excavation in foundation Long walls Short walls 2. Concrete in foundation Long walls Short walls 3. Brickwork in foundation & plinth Long walls 1st footing 2nd footing 3rd footing Short walls 1st footing 2nd footing 3rd footing 4.

or depth

2 2

6.2m 3.4m

0.9m 0.9m

0.9m 0.9m

10.04 5.51 15.55m3

Length =5.3+0.9=6.2m Length =4.3-0.9=3.4m

2 2

6.2m 3.4m

0.9m 0.9m

0.3m 0.3m

3.35 1.83 5.18 m3

Length =5.3+0.9=6.2m Length =4.3-0.9=3.4m 1/3rd of excavation

2 2 2 2 2 2

5.9m 5.8m 5.7m 3.7m 3.8m 3.9m

0.6m 0.5m 0.4m 0.6m 0.5m 0.4m

0.3m 0.3m 0.6m 0.3m 0.3m 0.6m

2.13 1.74 2.74 1.33 1.14 1.87 10.95m3

Length =5.3+0.6= 5.9m Length =5.3+0.5= 5.8m Length =5.3+0.4= 5.7m Length =4.3-0.6=3.7m Length =4.3-0.5=3.8m Length =4.3-0.4=3.9m

Brickwork in superstructure Long walls 2 Short walls 2

5.6m 4.0m

0.3m 0.3m

3.5m 3.5m

11.76 8.4 20.16m3

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Details of measurement & calculation of quantities

Item no. 1. 2. 3.

Description of item Earthwork in excavation in foundation Concrete in foundation Brickwork in foundation & plinth 1st footing 2nd footing 3rd footing

No. 1 1

Length 19.2m 19.2m

Breadth 0.9m 0.9m

Height or depth 0.9m 0.3m

Quantity m3 15.55 5.18

Remarks Total center length of all walls 19.2m

1 1 1

19.2m 19.2 m 19.2 m 19.2 m

0.6m 0.5m 0.4m 0.3m

0.3m 0.3m 0.3m 3.5m

4.

Brickwork in 1 superstructure

3.46 2.88 4.61 10.95 20.16

By center line method

Estimate by center line method the quantities of the following items of a two roomed building.

DOORS (D) 1.2m*2.1m WINDOWS (W) 1.0m*1.5m SHELVES (S) 1.0m*1.5m

All walls are of same section lintels over doors, windows and shelves

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Details of measurement & calculation of quantities

Item no.

particulars of items

No. Length (m) 1 1 39 39

1. 2. 3.

Earthwork in excavation in foundation Lime concrete foundation 1st class brickwork in 1:6 cement mortar in foundation & plinth 1st footing 2nd footing 3rd footing Plinth wall above footing DPC 2.5mm c.c Deduct door sill 1st class brickwork in lime mortar in superstructure Deduct door, window, shelve openings & lintels

Breadth Height (m) or depth (m) 1.1 1.0 1.1 0.3

Quantity (m3) 42.9 12.87

Remarks

Total length L= 40.1m L=40.1-1/2*2*1.1=39m L= same as above

1 1 1 1 1 2 1

39.3 39.4 39.5 39.7 39.7 1.2 39.8

0.8 0.7 0.6 0.4 0.4 0.4 0.3

0.2 0.1 0.1 0.8 4.2

6.29 2.76 2.37 12.7 26.1 15.88m2 0.96m2 14.92m2 50.15 4.40 45.75

L=40.1-1/2*2*0.8=39.3m L=40.1-1/2*2*0.7=39.4m L=40.1-1/2*2*0.6=39.5m L=40.1-1/2*2*0.4=39.7m L=40.1-1/2*2*0.4=39.7m

4.

5.

L=40.1-1/2*2*0.3=39.8m

Same as previous example

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LECTURE 6 General items of work for building estimates

1. Earthwork
Earthwork in excavation and earthwork in filling are usually taken out separately under different items, and quantities are calculated in m3. Foundation trenches are usually dug to the exact width of foundation with vertical sides. Earthwork in excavation in foundation is calculated by taking the dimension of each trench length* breadth* depth. Filling in trenches after the construction of foundation masonry is ordinarily neglected if the trench filling is accounted, this may be calculated by deducting the masonry from the excavation. Earthwork in plinth filling is calculated by taking the internal dimensions in between plinth wall (length* breadth) which are usually less than the internal dimensions of the room by two offsets of the plinth wall and height is taken after deducting the thickness of concrete in floor. If sand filling is done in plinth, this should be taken separately.

2. Soling
When the soil is soft or bad, one layer of dry brick or stone soling is applied below the foundation concrete. The soling layer is computed in m2 (length* breadth) specifying the thickness.

3. Concrete in Foundation
The concrete is taken out in m3 by (length* breadth*thickness). The length & breadth of foundation concrete are usually same as excavation, only the depth or thickness differs. The thickness of concrete varies from 200 mm to 450 mm, usually 300 mm.

4. Damp proof Concrete (DPC)

DPC usually of 2.5cm thick rich cement concrete or 2cm thick rich cement mortar 1:2 mixed with standard water-proofing material is provided at the plinth level to full width of plinth wall, and the quantities are computed in m2 (length*breadth). Usually DPC is not provided at the sills of doors and verandah openings for which deduction are made.

5. Masonry
Masonry is computed in m3 (L*B*H). Foundation and plinth masonry are taken under one item and masonry in superstructure is taken under a separate item. In storeyed building the masonry in each storey as ground floor above plinth level, first floor, etc. is computed separately. In taking out quantities the walls are measured as solid and then deduction are made for opening as doors, windows, etc. and such other portions as necessary.

6. Lintels over opening

Lintels are RCC quantities are calculated in m3, length of lintel is equal to the clear span + two bearings. Thus the length of the lintel, l=s+2t i.e. clear span + two bearing. 7.

Centering And Shuttering (Formwork)

The cost of form work is about 30% of cement concrete unless otherwise specified formwork is measured separately in m2 multiplying length and breadth. Measurement is taken as the actual surface in contact with concrete or any other materials requiring formwork.

8. RCC work
RCC work may be in roof or floor slab in beams, lintels, columns, foundations etc. and the quantities are calculated in m3. Length, breadth & thickness are found correctly from the plan, elevation and section or from other Page | 13

detailed drawing. Bearings are added with clear span to get the dimensions. The quantity of reinforcement is found separately by providing a separate item in the estimate if not otherwise mentioned.

9. Flooring and roofing

(i)

Ground floor

The base line concrete and floor finishing of RCC or stone or marble or mosaic etc. are usually taken as one job or one item (combined in one item) and the quantity is calculated in m2 multiplying the length by the breadth. The length & breadth are measured as inside dimensions from wall to wall of superstructure. Both the works of base concrete & floor finishing are paid under one item.

(ii)

1st, 2nd floor etc. Supporting structure is taken separately in m3 as RCC & the floor finishing is taken separately in m2.

(iii)

Roof

Supporting structure is taken separately in m3 and the lime concrete terracing is computed in m2 with thickness specified, under a separate item including surface rendering smooth.

10. Plastering & painting

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Lecture 7
BOOK VALUE Book value is defined as the value of the property shown in account book in that particular i.e. original cost less the total depreciation till that year. Thus the book of a property gradually reduces at a constant amount year after year upto the limit of scrap value i.e. upto its utility period. Book value is applicable on building and movable properties but not on land. This usually required in the accounts book of a company to show the assets & also required to determine the reserve price for cont. sale. YEAR PURCHASE (Y.P.) Year purchase is defined as the capital sum required to be invested in order to receive a net annual income as an annuity of Re 1/- at certain rate of interest. Let an interest Re 1/- be gained per annum on capital. DEPRECIATION Depreciation is the loss in the value of the property due to its use, life, wear, tear, decay, and obsolescence. This is an assessment of the physical wear and tear of the building or property and is naturally dependent on its original condition, quantity of maintenance and mode of use. Thus the value of a building or property (but not land) decreases gradually upto the utility period due to depreciation. There are different methods of calculation of depreciation. Whatever method is adopted book value of a property at a particular time is the original cost less all depreciation till the time. The general decrease in the value of a property is known as Annual depreciation. Present value of an old building should be worked out on the basis of an annual rate of physical deterioration multiplied by the buildings age and concluding by making a final adjustment for obsolescence. TYPE OF DEPRECIATION The different type of depreciations are 1. Physical depreciation (i) Wear and tear from operation. (ii) Decrepitude i.e. action of time & the element. 2. Function depreciation (i) Inadequacy or suppression (ii) Obsolescence. DETERMINATION OF DEPRECIATION Method of calculating depreciation 1. 2. 3. 4. Straight line method. Constant percentage method / Declining Balance Method. Sinking fund method. Quantity survey method.

STRAIGHT LINE METHOD The property is assumed to lose value by a constant amount every year, and thus a fixed amount of original cost is written off every year so that as the end of the term when the asset is work out only the scrap value remains. Let C = Original; Sc = Scrap value; n = life of property n years; D = annual depreciation by straight line method. Annual depreciation =

original costscrap value life in years

DSc n
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PROBLEM The total cost of a new building is Rs 150,000. Workout the depreciated cost of the building after 20 years by Straight line method if the scrap value is Rs 15,000. Assuming the life of the building is 80 years.
SOLUTION:

Annual depreciation by Straight line method Annual depreciation =

original costscrap value life in years

150,00015,000 80

= 1687.52

Depreciation for 20 years = Rs 1687.52*20 = Rs 33,750 Therefore depreciated cost of building after 20 years = Rs 150,000 33,750 = Rs 116,250/CONSTANT PERSENTAGE METHOD / DECLINING BALANCE METHOD In this method the property is assumed to lose value annually at a constant % of its value (or book value). Let p = %rate of annual depreciation for constant % method expressed in decimal C = Original cost Sc = scrap value n = life of property in years. By constant % method at the end of 1st year the value of property = C (1 p) 2nd year the value of property = C (1 p) (1 p) = C (1 p) 2 3rd year the value of property = C (1 p) (1 p) (1 p) = C (1 p) 3 At end of n years value of the property becomes ultimately the scrap value = Sc = C (1 p) n Therefore p = 1 (Sc/C) 1/n PROBLEM The present value of a machine is Rs 20,000/- workout the depreciation cost at the end of 5 years, if the salvage value is Rs 2,000. Assume life of the machine be 16 years.
SOLUTION

The % rate of annual depreciation for Constant % method p = 1 (Sc/C) 1/n = 1 (2,000/20,000) 1/5 =1 0.866 =0.134 Therefore value of the property at the end of 5 years = C (1 p) 5 =20,000(1 0.134) 5 = 9,741.35/-

SINKING FUND Sinking fund is an amount which has to be set aside at fixed intervals of time out of the gross income so that at the end of the useful life of the building or property, the fund should accumulate to the initial cost of the property. Abuilding, a machine, a vehicle etc. becomes useless after certain years. Hence it is necessary to make some provision whereby the owner can accumulate to a sum required for rebuilding the premises or can replace the article. For the above purpose sinking fund is periodically collected and deposited in a bank to get highest compound interest.

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DETERMINATION OF SINKING FUND Scrap value is considered as 10% of the building cost. The calculation of sinking fund is made on 90% cost of the building. Let, S = Total amount of sinking fund I = Annual installment required i = Rate of interest expressed in decimal n = No. of years Ic = Co-efficient of annual sinking fund, so that I = Ic*S The 1st instalment would accumulate interest for (n 1) years 2nd instalment would accumulate interest for (n 2) years Also the annual sinking fund for redemption of Rs 1.0would be Ic (I =Ic*S & S=1). Consequently, the 1st instalment would accumulate to the second to Ic (1+i) n 2 Therefore Ic [(1+i) n 1 + (1+i) n 2+ -------------+ (1+i) 2 + (1+i) + 1] = 1

Therefore

= 1; =>

Therefore

PROBLEM A person has purchased an old building at a cost Rs 90,000/- on the basis that the cost of land is Rs 50,000/-and the cost of the building structure is Rs 40,000/-. Considering the future life of the building structure be 20 years, workout the amount of annual sinking fund at 4% interest when scrap value is 10% of the cost of the building. Solution: Scrap value = 10% cost of building structure = 0.01*40,000 = 4,000/Therefore the total amount of sinking fund to be accumulated = 40,000 4,000 = 36, 000/Annual sinking fund for redemption of 36,000 in 20 years.

= [(36,000*0.04) / {(1+0.04) 20 1}] = 36,000*0.0336 = 1,209.60 Annual instalment for sinking fund for a period of 20 years = Rs 1,209.60

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LECTURE 8
1. VALUE: Value means its worth or utility. Value varies time to time and depends largely on the supply of that particular type of property and the extent of the demand for it the cost of construction of a building may have no relation to the value of the same if sold in the open market. The value of a property within a short time may be more for than the cost of construction when there are more buyers for that type of property and vice-versa. 2. COST: Cost means the original cost of construction and can be known after accounting all day-to-day expenditure from the very planning stage till the construction is completed. The cost of an old building becomes less due to its age and change in fashion. For valuation purpose the cost of an old building is worked out from the present cost of construction of such a new building less the calculated amount of loss of the building due to its wear and tear. 3. VALUATION: Valuation is the art of assessing the present fair value of a property at a stated time. Valuation of anything is an estimate of the value of that thing in terms of money. It only attempts at suggesting the fair prices. Rises and falls of the fair price can be occur in a very short space of time. 4. PURPOSE OF VALUATION: (a) Purchase for investment or for occupation: For investment a property is purchased & for this valuation property becomes necessary. (b) Tax fixation: To fix up municipal tax of a property, the valuation is essential by municipal authorities which depends on the class of city and trade importance. (c) Sale: For sale of property valuation becomes necessary which depends upon price that can be obtained in the market and the sellers consider this amount as a reserve piece below which any offer is not acceptable to them. (d) Rent fixation: Valuation of property is necessary to determine or justify the rent of a property and is usually required for fixation of standard rent or fair rent according to Rent Control Act. (e) Insurance premium: To fix up insured value of a property excluding the cost of land, valuation is required in order to replace the same and thus to determine the insurance premium. (f) Mortgage value or security of loads: The raise loans against security of a property its valuation is necessary. The quantum of money that be advanced against the mortgage of property is determined by valuation. 5. GROSS INCOME: Gross income is the total income or recipient from all sources without deducting the outgoings necessary for taxes, maintenance, collection, replacement or loss of income, ground rent etc. whatever it may be. 6. OUTGOINGS Outgoings are the expenses to be made by virtue of being in possession of the property and also the expenses of maintaining the property. (a) Taxes: These include municipal taxes, property tax, wealth tax, etc. which are to be paid by the owner of the property annually. These taxes are fixed out the basis of Annual rental Value of the property after deduction for annual repairs etc. Page | 18

(b) Repairs: The repairs are required to be carried out every year to maintain a property in fit condition. The amount to be spent on repairs depends on the age, construction nature of the building etc. and usually 10% to 15% of the gross in lone. (c) Management & collection charge: These include the expenses on rent collector, watchman, liftman, pump attendant, sweeper etc. (d) Insurance: The amount of actual insurance premium is considered as an outgoing expenses. Insurance premium depends on the construction of the building, the nature of occupancy of the building. (e) Loss of rent: Part of a property may remain vacant for some period and will not fetch any rent for that period. Therefore the loss of rent is considered as outgoing expenses and deducted from the calculated gross rent. 7. SCRAP VALUE: Scrap value is the value of dismantled materials of a property at the end of its utility period, and absolutely useless except for sale as scrap. When it applies to an old building which has outlived its useful span of life and repairing for re-use is not visible, a certain amount can be got by selling the old useful materials like bricks, steel, wooden articles etc. less cost of demolition of the buildings. The scrap value of a building is usually considered 10% of the cost of construction. 8. SALVAGE VALUE: It is the estimated value of a built up property at the end of its useful life without being dismantled. This is generally accounted by deducting the depreciation from its new cost. 9. MARKET VALUE: Market value of a property is the value at which it can be sold in the open market at a particular time. In the open market means the property is offered for sale by advertising in daily News Papers and all necessary steps are adopted so that every person who desires to purchase the same can make an offer.

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LECTURE 9
SINKING FUND METHOD In this method of the depreciation is assumed to be annual sinking fund plus the interest of the accumulated sinking fund till that year. Annual sinking fund to provide for Rs 1/- in n years i = rate of interest expressed in decimal. An amount of Rs 1/- per annum in n years Rate of depreciation in n years =X*Y = XY%. PROBLEM A concrete mixer was purchased at Rs 8,000/-. Assuming salvage value to be Rs 1,000 after 5 years calculate depreciation for each year adopting a. Straight line method b. Constant percentage method c. Sinking fund method considering 6% interest (a) Straight line method Annual depreciation, D (b) Constant percentage method = Y (say) = X (say)

CSc n

= {(8,000-1,000)/5} = Rs 1,400/-

Constant % = p = 1 (Sc/C) 1/n = 1 (1/8) 1/5 = 0.34 Value of property after 5 years = c (1 p) 5 =8,000 (1 0.34) 5 =Rs 1,000/8000(1 0.34) =5280 AGE Therefore depreciation for that year = (8000 5280) =2720 DEPRECIATION FOR THAT YEAR BOOK VALUE

0 0 8000 1 2720 5280 2 1795 3485 3 1185 2300 4 783 1517 5 517 1000 (c) Sinking fund method Annual sinking fund with 6% interest salvage value 1,000 will be [{(8,000 1000)*0.06} / {(1+0.06) 5 1}] =1,240 For 2nd year @ 1,240

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