Valuation for Trade Related Properties 1

Case Study 1: Hotel Valuation

Question

A 50-bed hotel in Batu Pahat, Johor has an average annual occupancy of 50% and
charges, on average, RM70.00 per room per night. The premises are held on a freehold
basis and the hotel is part of a small chain and must contribute towards head office
overheads.

Data information extracted from hotel accounts are shown below.

Income RM Expenditure RM
Accommodation 638 750 Purchases during the year 45 000
Bar 45 000 Wages 200 000
Restaurant 25 000 Utilities 3 500
Laundry & Cleaning 2 500
Business rates 36 000
Value on 1 Jan 105 000 Advertising 1 000
Value on 31 Dec 95 000 Contents insurance 1 250
Value of fixtures, fittings, Repairs & Renewals 2 500
Furniture and equipment 250 000
Building insurance 1 000
Contribution to HQ costs 2 000
Operators remuneration 50 000

By considering all data above, you are required to carry out a Profit method of valuation
to:

Determine a total value of business for the hotel

 Valuation for Trade Related Properties 2

Working answer

(1) GROSS TURNOVER (Hotel Revenues)

Accommoadtion RM70 per night @ 365days 638,750

@ 50 room @ 0.5 (Occ.) 45,000
Bar 25,000
Restaurant
708,750
(2) LESS: COST OF SALES

Purchase 45,000
Adjustment for Depreciation
in value of stock 1 Jan : 105,000
31 Dec: 95,000 10,000
55,000
(3) GROSS PROFIT 653,750

(4) LESS WORKING EXPENSES

Wages 200,000
Utilities 3,500
Laundary & Cleaning 2,500
Business Rates 36,000
Advertising 1,000
Contents Insurance 1,250
Repairs & Renewals 2,500
Building Insurance 1,000
Contribution to HQ 2,000
249,750
(5) NET PROFIT 404,000

(6) LESS:
Operators Remuneration 50,000
Interest on Operators
Capital 250,000
Say 10% 0.1
25,000
Stock average & Cash Say 100,000
@10% 0.1
10,000 35,000
85,000
(7) ADJUSTED NET PROFIT 319,000
Capitalised Earnings
Valuation
 Valuation for Trade Related Properties 3

YP perpetuity @ 10% 10
(8) PROPERTY VALUATION 3,190,000
IF THE BUSINESS TO BE SOLD
Item to be included when valuing business:

Furniture, Fixture, Fittings and Equipment 250,000

Stock average & Cash 100,000
350,000
(9) TOTAL VALUE OF BUSINESS 3,540,000