Understanding Asset Valuation: Salvage Value, Book Value, and Scrap Value

Understanding Asset Valuation: 

Salvage Value, Book Value, and Scrap Value

Introduction:

• In the realm of asset valuation, various terms play a crucial role in determining the financial standing of an organization. Three key concepts that often come into focus are Salvage Value, Book Value, and Scrap Value. Each of these terms contributes uniquely to understanding the worth of an asset, and their distinctions are vital for accurate financial reporting and decision-making.

1.Salvage Value:

• Salvage value, also known as residual value, is the estimated residual worth of an asset at the end of its useful life. It represents the amount a company expects to receive when it disposes of the asset or removes it from service. Determining salvage value is crucial for calculating depreciation, as it influences the total depreciation expense over the asset's useful life.

• The salvage value is an estimate, and factors such as market conditions, technological advancements, and the physical condition of the asset contribute to this valuation. The more accurately a company can estimate the salvage value, the more precise its depreciation calculations will be.

2.Book Value:

• Book value, also referred to as carrying value or net book value, is the value of an asset as recorded on a company's balance sheet. It is calculated by subtracting the accumulated depreciation from the original cost of the asset. The book value represents the asset's net worth based on accounting records.

• Book value is a useful metric for assessing an asset's economic value to the company at a specific point in time. However, it may not reflect the market value of the asset or its true worth in a dynamic business environment.

3.Scrap Value:

• Scrap value, also known as salvage value in some contexts, is the amount a company expects to receive from selling or scrapping an asset at the end of its useful life. Unlike salvage value, which is more comprehensive and considers potential alternative uses, scrap value is specifically associated with the proceeds from selling the asset as scrap material.

• Scrap value is relevant for assets with minimal or no remaining useful life, where the primary option is to sell the asset as scrap. Companies need to consider factors such as current market prices for scrap materials when estimating the scrap value of an asset.

Understanding the Differences:

Focus on Time:

   - Salvage value focuses on the end of an asset's useful life.

   - Book value represents the current worth of an asset on the balance sheet.

   - Scrap value is relevant when an asset is considered for disposal.

Calculation Method:

   - Salvage value involves estimates based on market conditions and the asset's condition.

   - Book value is a calculated figure derived from the original cost and accumulated depreciation.

   - Scrap value considers the potential proceeds from selling the asset as scrap material.

Conclusion:

• In conclusion, salvage value, book value, and scrap value are integral components of asset valuation with distinct purposes. Salvage value aids in depreciation calculations, book value reflects the asset's current worth on the balance sheet, and scrap value is crucial for assets nearing the end of their useful life. A comprehensive understanding of these concepts empowers businesses to make informed financial decisions and effectively manage their asset portfolios.

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Comparing depreciation and obsolescence based on various factors

 Comparing 

depreciation and obsolescence based on various factors:

Factor	Depreciation	Obsolescence
Loss of Value	Gradual loss due to wear and tear, age, and use.	Can be sudden or gradual, resulting from external factors like technological advancements or changes in market demand.
Condition	Related to the physical condition of the asset.	Related to external factors impacting the asset's relevance or utility.
Nature of Impact	Internal factors like wear and tear.	External factors like technological changes or shifts in market demand.
Age	Accumulates over the asset's useful life.	May occur at any stage of an asset's life, especially when it becomes outdated or irrelevant.
Method to Find-out	Calculated using methods like straight-line, declining balance, or units of production.	Requires ongoing analysis of market trends, technological advancements, and other external factors affecting the asset.

 

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Depreciation vs. Obsolescence: Understanding the Differences and Comparisons

Introduction:

• Depreciation and obsolescence are terms frequently used in accounting and finance, often interchangeably. However, they represent distinct concepts with different implications for asset valuation and financial decision-making. In this article, we will delve into the definitions of depreciation and obsolescence, highlighting their differences and drawing comparisons between the two.

Depreciation:

• Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It reflects the decrease in the value of an asset due to factors such as wear and tear, age, and regular use. Depreciation helps businesses match the cost of an asset with the revenue it generates over time, providing a more accurate representation of the true economic cost of using that asset.

• There are various methods for calculating depreciation, including straight-line depreciation, declining balance depreciation, and units of production depreciation. The choice of method depends on factors such as the nature of the asset and its expected pattern of use.

Obsolescence:

• Obsolescence, on the other hand, refers to the diminished value of an asset resulting from it becoming outdated or no longer in demand. Unlike depreciation, which is primarily related to wear and tear or physical deterioration, obsolescence is tied to factors such as technological advancements, changes in market preferences, or shifts in regulatory requirements.

• Types of obsolescence include technological obsolescence (rendering an asset obsolete due to technological advancements), functional obsolescence (a decline in an asset's value due to changes in consumer preferences or market needs), and economic obsolescence (external factors like changes in laws or economic conditions affecting the asset's value).

Differences between Depreciation and Obsolescence:

Nature of Impact:

• Depreciation: Primarily results from wear and tear, physical deterioration, or regular usage.
• Obsolescence: Arises from factors external to the asset, such as technological advancements or changes in market demand.

Timing of Impact:

• Depreciation: Occurs gradually over the asset's useful life.
• Obsolescence: Can occur suddenly or gradually, often influenced by external events or industry trends.

Calculation Methods:

• Depreciation: Calculated using methods like straight-line, declining balance, or units of production.
• Obsolescence: Involves assessing external factors affecting the asset's value, such as market trends and technological developments.

Comparisons:

Common Ground:

• Both depreciation and obsolescence contribute to the decline in the value of an asset over time.

Mitigation Strategies:

• Strategies to mitigate depreciation involve regular maintenance and repairs.
• Mitigating obsolescence often requires proactive monitoring of industry trends, technological advancements, and market demand, with strategic planning for asset upgrades or replacements.

Timing of Recognition:

• Depreciation is recognized gradually over the asset's useful life.
• Obsolescence may be recognized suddenly when an asset becomes obsolete or gradually as its value diminishes over time.

Conclusion:

• In summary, while depreciation and obsolescence both contribute to the reduction in the value of assets, they stem from different sources and have distinct implications for financial management. Understanding these differences is crucial for businesses to develop effective strategies for asset management, replacement planning, and overall financial sustainability. Depreciation addresses the wear and tear of assets over time, while obsolescence considers external factors that can impact an asset's value, necessitating a forward-looking approach to asset management.

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Understanding Depreciation of Assets: Exploring Functional, Physical, and Contingent Depreciation

Introduction:

Depreciation is a crucial accounting concept that reflects the decrease in the value of an asset over time. This reduction in value is attributed to various factors such as wear and tear, obsolescence, or the passage of time. Businesses use depreciation to allocate the cost of an asset over its useful life, helping them accurately represent the true economic cost of using that asset. In this article, we will delve into the different types of depreciation, with a focus on functional, physical, and contingent depreciation.

Types of Depreciation:

1.Functional Depreciation:

Functional depreciation occurs when an asset's efficiency or functionality decreases over time. This type of depreciation is often associated with technological advancements or changes in market demand that render the asset less effective in fulfilling its intended purpose. For example, a computer system may experience functional depreciation as newer models with enhanced features become available, making the older system less efficient.

Businesses must regularly assess their assets for functional depreciation to make informed decisions about upgrades or replacements. Accurate evaluation of functional depreciation ensures that resources are allocated optimally, maintaining operational efficiency.

2.Physical Depreciation:

Physical depreciation is the most common and easily recognizable form of depreciation. It refers to the wear and tear that an asset experiences due to regular use and exposure to the elements. Physical depreciation affects tangible assets such as machinery, vehicles, and buildings. As these assets age, their physical condition deteriorates, leading to a decline in their market value.

Regular maintenance and repairs can mitigate physical depreciation to some extent, but it is inevitable over an asset's lifespan. Accounting for physical depreciation allows businesses to plan for the eventual replacement or major refurbishment of assets, ensuring continued productivity.

3.Contingent Depreciation:

Contingent depreciation is less straightforward and is associated with external factors that may impact an asset's value. This type of depreciation is contingent on events such as changes in market conditions, regulatory developments, or economic downturns. For instance, a company operating in an industry affected by rapid technological changes may experience contingent depreciation if its assets quickly become outdated.

Anticipating contingent depreciation requires a comprehensive understanding of the external factors influencing an industry or market. Businesses need to remain agile and adaptable to navigate contingent depreciation effectively, making strategic decisions to minimize its impact on asset values.

Conclusion:

Depreciation is a vital aspect of financial accounting that reflects the economic reality of asset usage over time. Functional, physical, and contingent depreciation represent different facets of the overall depreciation process, each requiring careful consideration by businesses. By understanding and accounting for these various forms of depreciation, organizations can make informed decisions about asset management, replacement strategies, and resource allocation, ensuring long-term financial sustainability.

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Estimation, Costing and Construction Management - Civil Engineering

Estimation, Costing and Construction management 

Quick Revision Civil Engineering

 

1. Straight line method: 

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

2. Constant percentage method: 

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

Annual Depreciation=`[1−(Scrapvalue/originalcost)^n]`

The preparations of a detailed construction estimate consist of working out quantities of various items of work and then determine the cost of each item. This is prepared in two stages.

• 1. Details of measurements and calculation of quantities
• 2. Abstract of Estimated Cost
• In the first stage, the quantity, availability, and transportation of materials parameters is being analyzed.

The main function of an abstract of the estimate are as follows:

• i) The total estimated cost and the different items of works are required to complete a project can be known.
• ii) This is the basis on which percentage rate tenders are called after excluding the amounts for contingency and work-charged establishment.
• iii) This is a part of the tender document so as a contractor can arrive at his own rates from the schedule of work described in the description column.
• iv) This is the basis on which bills are prepared for payment.
• v) Comparative costs of different items of works can be known.

The capacity of doing work by an artesian or skilled labour in the form of quantity of work per day is known as out turn of the labour

Particulars of Item	Expected out-turn (m3)
Cement concrete (1 : 2 : 4)	5.0
Lime concrete in foundation	8.50
Reinforced Brick work	1.00
R.C.C work	3.00
Brickwork in lime or cement mortar in foundation and Plinth	1.25

Lead 

• The distance between the source of availability of material and the construction site is known as Lead and is measured in km.
• The cost of conveyance of material depends on lead.
• The environment lead on the metalled roads are arrived by multiplying by a factor as follows:
• a) For Sandy tracks – Lead × 1.4
• b) For metal tracks – Lead × 1.0
• c) For cartze tracks – Lead × 1.1

• Wet Qty. of concrete = Area × thickness
• Dry vol. of concrete = 1.54 × Wet volume of concrete
• No. of cement Bags = Cement Qty/0.035

Particulars of items	Units of measurements
Well sinking, pile driving, Dag-belling, Grouting of cracks or joints, Supply of pipes, Skirting, cornice	Meters
Plastering, pointing, Dado, White Washing, distempering, painting, polishing, coal tarring, removing of paint	Square meters
Tile roof, slate roofing, timber roofing, Ceiling, centering and shuttering, Damp proof course, Turfing or lining of canal, surface dressing or leveling, jail work or Jafri work, Woodwork indoors and shutters, sawing of timber, woodwork in partition and plywood.	Square meters
Boring holes in iron, painting letters, and figures, ornamental pillar caps, cleaning flues, cotton cords in skylight, Easing doors and windows, Fixing doors and windows	Numbers
Earthwork in excavation, puddling, Quarrying of stones, concreting, brickwork in the foundation, stone masonry	Cubic meters
Rolled steel joists, steel reinforcement bars, binding of steel reinforcement, fabrication and hoisting of steelwork	Quintals

Types of Estimage

Preliminary Estimate

It is an approximate estimate and prepared by owner itself before the actual award of work to any agency.

Cube Rate Estimate

It is an approximate estimate and prepared by calculating the cubical content of building by multiplying its length, breadth and height.

Detailed Estimate

It is the accurate estimate prepared by working out quantities of each items of work. 

It is prepared in two stages: 

• 1. Details of measurements and calculation of quantities and 
• 2. Abstract of Estimate.

Revised Estimate

It is prepared when original sanctioned estimate is likely to exceed more than 5%.

Supplementary Estimate

It is the fresh detailed estimate of the additional works in addition to the original estimate. It is required when further development is required during the progress of work.

Culverts

Culverts are usually included in the road estimate on the basis of cost per running meter of the span.

Earthwork

• Earthwork is measured in cubic meter for the estimation purposes. The length, breadth and depth shall be measured to get the cubic content.
• Measure of excavation or trenches or borrow pits shall be always taken for average dimensions.
• When the ground is fairly uniform “Deadman” or “Tell-Tales” shall be left at suitable intervals to determine the average depth of excavation.
• While for uneven or sloping ground, diagonal “Tell-Tales” shall be left.
• Note: 10% of the deduction shall be made in case of ordinary consolidated fills and in case of consolidation done by heavy machinery, a deduction of 5% shall be made. These deductions shall be adopted when it is not possible to make measurements from cutting and filling.

Cost Estimation

• Cost estimation may be defined as the process of forecasting the expenses that must be incurred to manufacture a product.
• These expenses take into consideration all expenditures involved in design and manufacture with all the related service facilities such as pattern making, tool making as well as a portion of the general administrative and selling costs.
• Cost estimates are the joint product of the engineer and the cost accountant.
• Estimating is the calculation of the costs which are expected to be incurred in manufacturing a component in advance before the component is actually manufactured.
• Costing may be defined as a system of accountants which systematically and accurately records every expenditure in order to determine the cost of a product after knowing the different expenses incurred in various departments.
  

Tendering 

• it is the process by which bids are invited from interested contractors to carry out specific packages of construction work.
•  It should adopt and observe the key values of fairness, clarity, simplicity and accountability, as well as reinforce the idea that the apportionment of risk to the party best placed to assess and manage it is fundamental to the success of a project.

Project scheduling

• it is a mechanism to communicate what tasks need to get done and which organizational resources will be allocated to complete those tasks in what timeframe. A project schedule is a document collecting all the work needed to deliver the project on time.

Project planning

• it refers to everything you do to set up your project for success. It’s the process you go through to establish the steps required to define your project objectives, clarify the scope of what needs to be done and develop the task list to do it.

Note: Scheduling is a part of project planning.

The various techniques used in project network analysis are:

• 1. Bar chart or Gantt chart
• 2. Linked bar chart
• 3. Mile stone chart
• 4. Work Breakdown structures
• 5. Critical Path Method (CPM)
• 6. PERT analysis - Program Evaluation and Review Techniques
• 7. Procedure Network analysis

Measurement Book (M.B.): 

• Measurement of all works and supplies are recorded in a special type of note book, called Measurement Book (MB). 
• It is used for making payments to the contractor. 
• The payment to the work done by contractor is made based on the Measurements of work done by contractor. 
• It basically consists of 3 main terms length, breadth and depth.

For example:

• Let a contractor has laid a slab for a building and he wants the payment.
• The length, breadth and depth of the slab will be recorded in MB and quantity will be calculated as some X cum. 
• The contractor will be paid according to the rate agreed in the agreement bond as so many Rs. per cum.

The construction manager can play the most vital lead role in achieving the project goals by performing the following functions effectively and efficiently:

• 1. Envisioning the task ahead
• 2. Enabling the individuals to perform the task systematically and efficiently.
• 3. Setting targets and monitoring performance.
• 4. Providing resources support.
• 5. Implementing a sound incentive scheme.
• 6. Communicating feedback.
• 7. Motivating the work force.
• 8. Building the line supervisors team.
• 9. Creating safe working environments.
• 10. Abiding by professional ethics.
• 11. Leadership 

Total float:

• The time span by which starting or finishing time of an activity can be delayed without delaying the completion of the project. It is the maximum available time in excess of the activity completion time.

Free float:

• The time span by which delay can be made without delaying the succeeding activities. It affects only preceding activity.

Independent float:

• It is the minimum excess available time which exists without affecting any of succeeding or preceding activities.

Interfering float:

• It is similar to head event slack.

Earnest money deposit

• It is the amount to be deposited by all the contractors when they submit their tender. EMD of the contractors whose tender is not accepted will be refunded
• Generally, 1%-2% of the estimated cost is submitted as the EMD.
• To ensure that a Bidder does not submit a Dummy Bid or back out at the time of tender opening, Government Department collects a small refundable fee from each bidder, which is called EMD. EMD is always in the form of a Demand Draft & cheques or cash are strictly not allowed.
• The success of a project largely depends on the capability of the contractor/vendor. Pre-qualification is a process to select competent contractors having technical and financial capability commensurate with the requirements of the particular procurement (Project / supply of goods/ hiring of services).
• So it is essential to call for the contractor’s credentials when a tender is invited.

Piece-work agreement

•  It is that for which only rate is agreed upon without reference to the total quantity of work to be done in a given period. In this type of agreement detailed specifications and the total cost of the whole work to be done are mentioned. It is terminable from either side at any time and cannot be called as a contract in true sense.
• It is suitable for urgent small work or if current contractor delays to execute the work or uses inferior quality of materials or leave the work partially complete, another contractor may be engaged at any time.

Item rate contract -

•  This contract is mostly followed by INDIAN Railway

Tender

It is a written offer submitted by the contractors in pursuance of the notification given, to execute certain work or supply of some specified articles or transport of materials at certain rates with the terms and conditions laid down in the tender documents.

Tender Form: 

• It is a printed standard form of contract giving standard conditions of a contract, general rules and directions for the guidance of contractors. There is also a memorandum for giving:
• i) General description of work, 
• ii) Estimated cost,
• iii) Earnest money, 
• iv) Security deposit,
• v) Time allowed for the work from date written order to commence and 
• vi) Columns for signature of contractor before submission of tender, signature of witness to contractor’s signature and signature of the officer by whom accepted.

• This is a part of tender document.

Item rate contract: 

• It is also known as unit-price contract or schedule contract. For such contracts, contractors are required to quote rates for individual items of work on the basis of schedule of quantities furnished by the department. This type of contract is followed by Central Public works and Railway departments.

Lump-Sum Contract:

•  In this form of contract, the contractors are required to quote a fixed sum for execution of a work complete in all respect i.e. according to the drawing, designs and specifications supplied to them with the tender within the specified time.
• The departmental schedule of rates for various items of work are also provided which regulates the payment to the contractor in respect of the items of works involved for any additions and alterations not covered by the original work.

Price Work Agreement:

•  It is type of contract in which the rate is agreed upon without reference to the total quantity of work to be done or the quantity of work to be done within a given period. But the detailed specifications and the total cost of the whole work to be done are mentioned.
• There is no security money and penalty clause and it is usually adopted for urgent small work and may be taken up for execution without inviting tender and a reasonable time is saved.

Target contract: 

• It is the type of contract where the contractor is paid on a cost-plus percentage basis for work performed under this contract, and in addition he receives a percentage plus or minus on savings or excess effected against either a prior agreed estimate of total cost or a target value arrived at by measuring the work on completion and valuing prior agreed rates.

Resources smoothing:

• It is the first approach of solving the resources allocation problem, in which the resources are considered to be unlimited. The original project duration (i.e. duration along the critical path) is however maintained.
• The start times of some of the activities are shifted within their available floats so that uniform demand is created for the resources.
• The smoothing or adjustment of resources resulting in least variation of resource demand is known as resource smoothing.

The statistical quality control

The statistical quality control evaluates the batch quality and controls the quality of process and products.

It uses following techniques

Sampling inspection:

•  A random sample is selected from a lot and inspection is done for that sample

Analysis of the data:

•  The results of sampling are analyzed by determining mean, range, standard deviation and the control limits.

Control charting:

•  Control limits are marked on a graph paper and the individual observations are marked on the graph, it takes the shape of control chart. If any observation is out of the limit it is clearly seen on the chart, and the corrective actions are taken to improve the product quality.

Which of the following are the sources of variation in quality control process in construction?

• 1. Material
• 2. Operator
• 3. Inspection activity

• Select the correct answer using the codes given below:
• Answer is 1 and 2.

Safety programs

Accident

• Accidents are an unplanned and unexpected occurrences that upsets the planned sequence of events and actions resulting in the loss of production injury to the person and damage to plants and equipment.
• Safety program generally does not talk anything about after-effects of accidents (compensation and medical payment). It always focuses on the prevention of accidents and how to develop a safe working procedure and environment.

Cost of an accident = Direct cost + Indirect cost

Direct costs

• These are the expenses incurred from and directly linked to an accident. Direct cost includes worker’s compensation payment, lost wages, medical expenses, and legal services.

Indirect cost

• It is real expenses associated with accidents. It may diffucult to assess these expenses for induvidual cases. 

Indirect cost includes:

• 1. Training replacement employees
• 2. Accident investigations
• 3. Implementation of corrective measure
• 4. Lost productivity
• 5. Injury reserve costs
• 6. Repairs of damaged equipment and property
• 7. Cost of absenteeism

Cost types

Operating cost 

• It incurred when the equipment is operated. The operating cost of equipment is influenced by various parameter namely no. of operating hours, location of job site, operating condition, category of equipment etc.

The operating cost consist of following.

• (a) Repair and maintenance cost
• (b) Fuel cost
• (c) Cost of lubricating oil
• (d) Tire cost
• (e) Equipment operator wages
• (f) Cost of replacing higher wear item.

Occupation safety and health (OSH):

• It is referred to as occupational health, workplace health and safety (WHS) is a multidisciplinary field concerned with the safety, health, and welfare of people at work. It applied on mining, factories, ports and construction.
• Occupational Safety and Health (OSH) is an area concerned with protecting the safety, health, and welfare of people engaged in co-workers, family members, employees, customers, and many others who might be affected by the workspace environment. 

Importance of safety:

• 1. Humanitarian reasons
• 2. Economic reasons
• 3. Organizational image
• 4. Laws and regulations

Important aspects of safety programmes:

• 1. Using a qualified safety person.
• 2. Develop safe working conditions.
• 3. Promote participation of workers for safety.
• 2. Assigning a competent person.
• 3. Making regular job site safety inspections.
• 4. Following safety procedures and rules.
• 5. Following safety procedures and rules.
• 6. Providing on-going safety training.
• 7. Enforcing safety rules and using appropriate discipline.

Quality and Quality Control

There are three types of quality:

i) Quality of Design: 

• Based on the market survey, the concept of the product is developed and then the specifications are finalized. It involves the sharing of ideas between marketing, manufacturing, and R&D units.

ii) Quality of Conformance:

•  It means the extent to which a company can develop products based on the customer requirements as per the specifications defined in the quality of design.

iii) Quality of Performance:

•  It includes the after-sale service and logistical support from the organization.

Quality of conformance in construction is affected by the following:

• 1. Construction methods adopted, skill of workers, quality of the materials used.
• 2. Supervision to conform to the plans and specifications and control to act immediately if anything goes out of the way to avoid any wastages.
• 3. Inspection through NDT and other sampling methods to assess the quality and plan control measures.

Inspection process is carried out after completing all the machining, without removing the job from the work holding fixtures.
we can say that inspection process should be carried out after completing the job

Key reasons for encouraging startup entrepreneurship:

• Innovations
• New jobs and economic growth
• Bringing new competitive dynamics into the economic system
• Promoting the research-innovation system
• Bringing the values of pro-activity into the society

Some Schemes related to Entrepreneurs are

Atal Incubation Centre (AIC)

• Started by Niti Aayog in 2016
• It is an innovative funding scheme to promote entrepreneurs by covering their capital operational costs.

NewGen IEDC

• Department of Science & Technology (DST) introduced the New Generation Innovation and Entrepreneurship Development Centre (NewGen IEDC) Programme in 2017.
• It promotes “knowledge-based and technology-driven start-ups” through mentor-ship, guidance and support. 

FAR - Floor Area Ratio

The quotient obtained by dividing the combined covered area (plinth area) of all floors, excepting areas specifically exempted under these regulations, by the total area of the plot.

FAR - Floor Area Ratio

The aspects that govern in specifying FAR, some of them being:

• 1. Occupancy class
• 2. Types of construction
• 3. Width of street fronting the building and the traffic load
• 4. Locality where the building is proposed and the density
• 5. Parking facilities
• 6. Local fire fighting facilities
• 7. Water supply and drainage facilities

Floor Area Ratio = Total covered Area/Plot Area

Particulars of items	Units of measurements
Well sinking, pile driving, Dag-belling, Grouting of cracks or joints, Supply of pipes, Skirting, cornice	Meters
Plastering, pointing, Dado, White Washing, distempering, painting, polishing, coal tarring, removing of paint	Square meters
Tile roof, slate roofing, timber roofing, Ceiling, centring and shuttering, Damp proof course, Turfing or lining of canal, surface dressing or levelling, jail work or Jafri work, Wood work in doors and shutters, sawing of timber, wood work in partition and ply wood.	Square meters
Boring holes in iron, painting letters and figures, ornamental pillar caps, cleaning flues, cotton cords in sky light, Easing doors and windows, Fixing doors and windows	Numbers
Earthwork in excavation, puddling, Quarrying of stones, concreting, brickwork in foundation, stone masonry	Cubic meters
Rolled steel joists, steel reinforcement bars, binding of steel reinforcement, fabrication and hoisting of steel work	Quintals

The expected outturn for different types of work per workman per day are:

:

S.No	Particulars of items	Expected out turn (per mason per day
1.	Earthwork in the excavation in ordinary soil	3.00 cu m
2.	Brickwork in lime or cement mortar in foundation and plinth	1.25 cu m
3.	Random rubble stone masonry in lime or cement mortar	1.00 cu m
4.	Earthwork in the excavation in hard soil	2.00 cu m

The rate of particular item of work depends on the following:

• 1. Specifications of works and material about their quality, proportion and construction methods.
• 2. Quantity of materials and their costs.
• 3. Cost of labours and their wages.
• 4. Location of work
• 5. Conveyance charges.
• 6. Overhead charges
• 7. Profits of contractor, consultant and other parties involved.

Revised Estimte 

• The revised estimate is a detailed estimate for revised quantities and the rate of items of works originally provided in the estimate without material deviation of a structural nature from the design originally approved for a project.

It is required to be prepared for the following reasons:

• i) When a sanctioned estimate is likely to exceed by more than 5% either from the rates being found insufficient or from cause whatsoever except important structural alteration.
• ii) When the expenditure of works exceeds or is likely to exceed by more than 10% of the administrative approval (for work more than ₹5 lakhs/-)
• iii) When there are material deviations from the original proposal but not due to the material deviation of structural nature.
• iv) When it is found that the sanctioned estimate is more than the actual requirement.

Capitalized value of property

• The capitalized value of a property is the amount of money whose annual interest at the highest prevailing rate of interest will be equal to the net income from the property. To determine the capitalized value of a property, it is required to know the net income from the property and the highest prevailing rate of interest.

Detailed estimate:

• A detailed estimate should have documents such as report, specifications, drawings/plans, design charts and schedule of rates.

• Factors such as, material quantity, transportation of materials, location of site, labour charges, cost of equipment (commonly allowed: - 2% of the estimated cost), overhead charges (commonly allowed: - 2% of the estimated cost), contingencies & unforeseen (commonly allowed:- 4% of the estimated cost) items are needed to consider well while preparing the detailed estimate.

Plinth Area Estimate:

• Plinth area estimate can be achieved by multiplying the values of plinth length, plinth width & plinth area rate. Here the plinth area is referred as, external plinth area of the building at floor level.

• Simply it can be also stated as the roof covered area of a building. Plinth area rate is derived by dividing the total cost of a previously constructed building by plinth area of the previously constructed building.

Cube rate estimate:

• This type of estimate done by multiplying the volume of the building by the unit cubic rate achieved from the previously (also recent) estimate.

•  This type of estimate is a little bit more accurate than above mentioned methods and mostly suitable for multi storied buildings.

Preliminary estimate:

• It is also called budget, approximate estimate. This type of estimate is prepared in the initial stage of a project.
• To give a clear idea to the owner (client) about the amount of cost needed for the project and to get the approval from necessary sanctioning bodies.

Scrap Value: 

• Scrap Value is the sell value of dismantled materials of an asset at the end of it’s useful life. Scrap Value is counted in the calculation of depreciation of a property, generally @10% of the cost of the Structure.

Salvage value: 

• Salvage Value is the Estimated Value of an asset without dismantling it at the end of it’s useful life.

Book Value: 

• Book value is the amount shown in the account book after allowing necessary depreciations. The book value of a property at a particular year is the original cost minus the amount of depreciation allowed per year and will be gradually reduced year to year and at the end of the utility period of the property, the book value will be only scrap value.

Market Value: 

• The market value of a property is the amount which can be obtained at any particular time from the open market if the property is put for sale. The market value will differ from time to time according to demand and supply.

Rateable value: 

• It is the net annual letting value of a property, which is obtained after deducting the amount of yearly repairs from the gross income.

Annuity: 

• It is the annual periodic payments for repayments of the capital amount invested by a party.

Capitalised value: 

• It is the amount of a money whose annual interest at the highest prevailing rate of interest will be equal to the net income from the property.

Estimation of wet volume of concrete

• The yield of concrete per bag means we have to find a wet volume of concrete
• For M20, 1 : 1.5 : 3
• In the above ratios, 1 represents cement, 1.5 represents sand, 3 represents aggregate.
• ∴ Sum of ratio = 1 + 1.5 + 3 = 5.5
• Volume of cement =1 / sumofratio × volume of concrete
• The volume of one bag of cement = 35 litres = 35 × 10power3 m3
• The volume of wet concrete = (2/3) × volume of dry concrete

 

 The long wall and short wall method

• In long wall and short wall method, the wall along the length of the room is considered to be long wall and the wall perpendicular to the length of the room is considered to be short wall.
• To get the measurement of materials and work, length of long wall or short wall, centre line lengths of individual walls is calculated first. Then the length of long wall, (out to out) may be calculated after adding half breadth at each end to its centre line length.
• Thus the length of short wall measured into in and may be found by deducting half breadth from its centre line length at each end. These lengths are multiplied by breadth and depth to get quantities.
• The length of long wall usually decreases from earth work to brick work in super structure while the short wall increases.

Administrative approval:

For any project by the department, an approval or sanction of the competent authority with respect to the cost and work is necessary at the first instance. Thus administrative approval denotes the formal acceptance of the proposals for incurring expenditure by the concerned administrative department.

Technical sanction:

It means the sanction and order by the competent authority of the department to the detailed estimate design calculations, quantities of work rates and cost of work. After the technical sanction of the estimate is received the work is then taken up for construction.

Expenditure sanction:

It means the concurrence of the Government to the expenditure proposed in cases where this is necessary. In all other cases the act of appropriation or re-appropriation will operate as sanction to the expenditure concerned.

• Generally, 0.6 m is taken as the distance from the external walls and 0.8 m is the gap between piles.

Area of one cement bag = 0.3 m2

Height of one cement bag = 0.15 m

No. of bags = Space for cement/Volume of one cement bag

Different methods to calculate depreciation are as follows :

• a) Straight-line method
• b) Constant percentage method
• c) Sinking fund method
• d) Quantity survey method

Quantity survey method: 

• In this method, the property is studied in details and extent of physical deterioration worked out in endeavor to calculate the depreciation.

Sinking fund method: 

• In this metho, the depreciation is assumed to be annual sinking fund plus interest of the accumulated sinking fund till that year.

Constant percentage method: 

• In this method, the property is assumed to lose value annually at a constant percentage of its value.

Straight-line method: 

• In this method, the property is assumed to lose value by a constant amount every year.

Plinth area is also called as built-up area and is the entire area occupied by the building including internal and external walls. It does not include courtyard area.

Plinth area = Builtup area - Courtyard area

The approximate cost of the complete labor as a percentage of the total cost of the building is 25 % or 0.25.

The percentage breakup of total cost of building is as follows:

:

Type	Material cost (in % of total cost)	Labour cost (in % of total cost)
Residential Building	60 – 70	25 – 35
Industrial Building	65 – 75	20 – 30

The total cost of building also involves cost of casualty, material hike, environmental conditions, delays, insurance etc. which constitutes 5 - 10 % of the total cost.

Approximate construction cost estimates

• Plinth area method, 
• Cubical contents method and 
• Unit base method are approximate construction cost estimates:

Plinth area method:

• Cost of Construction = Plinth Area * Plinth area rate
• Here, area is measured using outer dimensions of the buildings.

Cubical Contents Method:

• 1. Relevant for multi-storeyed buildings.
• 2. Cost of Construction = Volume of Buildings * Local Cube Rate
• 3. It is more accurate than plinth area or unit base method.

Unit Base Method:

• 1. Cost of Construction = Total no of units * unit rate of each item
• 2. For schools and colleges, the unit is ‘one student’ and for hospital, th e unit is ‘one bed’.

For 1 m3 volume of brick work, the bricks required are 500.

Mortar needed = 1 – 500 × 0.19 × 0.09 × 0.09 = 0.23 m3

Add 15% extra for frog filling and wastage

Volume of wet mortar = 0.23 × 1.15 = 0.265 m3

1 m3 of wet mortar = 1.25 m3 of dry mortar

 0.265 m3 of wet mortar = 0.33 m3 of dry mortar

Dry mortar as a percentage of brick work = 33%

Materials for different item work:

:

1	Bricks used for brickwork (20 cm × 21 cm × 10 cm)	500 Nos. for 1 cu.m
2	Dry mortar for brickwork	33% of the volume of brickwork
3	Dry mortar for rubble stone masonry	42% of the volume of stone masonry
4	Volume of dry concrete	1.54 times the volume of wet concrete
5	Volume of dry mortar	1.25 times the volume of wet mortar
6	Dry mortar for 12 mm plastering	2 cu.m for 100 sq.m

• The yield of concrete per bag means we have to find a wet volume of concrete
• For M20, 1 : 1.5 : 3
  • In the above ratios, 1 represents cement, 1.5 represents sand, 3 represents aggregate.
• ∴ Sum of ratio = 1 + 1.5 + 3 = 5.5
• Volume of cement  volume of concrete
• The volume of one bag of cement = 35 litres = 35 × 10-3 m3
• The volume of wet concrete = (2/3) × volume of dry concrete

Lease and Lease Holder

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

Other forms of the lease are as follows:

Building Lease: 

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

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

Occupational Lease: 

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

Sublease – 

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

Perpetual Lease – 

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

Long Term Lease

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

Short Term Lease

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

 the annual sinking fund

Annual sinking fund (I) is given by:

I=Si(1+i)n−1

Where,

S = total amount of sinking fund to be accumulated

i = rate of interest

n = number of years required to accumulate the sinking fund

Materials for different item work:

1 Bricks used for brickwork (20 cm × 21 cm × 10 cm)500 Nos. for

• 1 cu.m

2 Dry mortar for brickwork

• 33% of the volume of brickwork

3 Dry mortar for rubble stone masonry

• 42% of the volume of stone masonry

4 Volume of dry concrete

• 1.54 times the volume of wet concrete

5 Volume of dry mortar

• 1.25 times the volume of wet mortar

6 Dry mortar for 12 mm plastering

• 2 cu.m for 100 sq.m

Different method for approximate estimation

of construction projects are as follows:

Plinth area method: 

• The cost of construction is determined by the multiplying plinth area with the plinth area rate. The area is obtained by multiplying length and breadth (outer dimensions of the building).

• ∴ The estimate prepared on the basis of the built-up covered area at the floor level of any storey of a building is known as plinth area estimate.

Cubical Contents Method: 

• This method is generally used for multi-storeyed buildings. It is more accurate than the plinth area method and unit base method.
• The cost of a structure is calculated approximately as the total cubical contents (Volume of buildings) multiplied by Local Cubic Rate.

Unit Base Method: 

• According to this method the cost of the structure is determined by multiplying the total number of units with a unit rate of each item. In case schools and colleges, the unit considered to be as 'one student' and in case of a hospital, the unit is 'one bed', the unit rate is calculated by dividing the actual expenditure incurred or cost of a similar building in the nearby locality by the number of units.

Lintel

A lintel is a beam placed across the openings like doors, windows etc. in buildings to support the load from the structure above. The width of lintel beam is equal to the width of wall, and the ends of it is built into the wall.

The bearing provided should be the minimum of following 3 cases.

• • 10 cm
• • Height of beam
• • 1/10th to 1/12th of span of the lintel

The lintel based on material may be classified as following:

Timber Linter, Steel Lintel, Stone Lintel, Brick Lintel, Reinforced Lintel, etc.

Center line method

• In this method of estimation, the total centerline length of walls in a building is first calculated, then the center line length is multiplied with the breadth and depth of the respective items to get the total quantity at a time.

Deductions

• L Junction - There is no need to deduct from total centreline length.
• T Junction - Half (1/2) breadth wall measurement should be deducted for a T junction.

Valuation

• The technique of finding the fair price of an existing building or property is known as valuation.
• Valuation of property is done to work out the amount of fair rent of a building, buying or selling of the property, etc., especially when it is requisitioned by the government or semi-government organization.
• Future value of the property cannot be determined by valuation.

There are generally six methods of valuation:

• Rental Method of Valuation
• Direct Comparisons of the capital value
• Valuation based on the profit
• Valuation based on the cost
• Development method of Valuation
• Depreciation method of Valuation

Valuation of a property may be prepared by different methods as follows:

• a) Rental method of valuation ⇒ Suitable for a property with the new building

• b) Land and building method of valuation ⇒ Suitable for special purpose properties such as schools, police stations, etc

• c) Capital value method ⇒ Suitable for open land, clubs, out homes, etc
• d) Profit-based valuation ⇒ Suitable for shops, hotels, cinemas, etc
• e) Development method of valuation ⇒ Suitable for an underdeveloped property
• f) Amortisation method ⇒ it is based on dynamic allocation table.

 

Floor live load and Roof live load

• The nature of roof live load is different from that of floor live load so the approach to reducing roof live load is different from that used for floor live load.
• The requirement is presented in ASCE 7-05 4.9. 
• The commentary in ASCE 7-05 C4 about roof live load reductions explains the anticipated difference in the use of roof areas vs. floor areas.
• The reduction formula has two reduction terms: One for the tributary area supported by the structural element (R1) and the other for the slope of the roof surface (R2).
• R1 is formulated in such a way that there is no reduction for tributary areas less than 200 sqft and is maximum when the tributary area reaches 600 sqft, varying linearly in between.
• Formula can be written as: R1 = max[min(1.2 - 0.001 × At, 1), 0.6]
• R2 is formulated in such a way that there is no reduction for the roof with slopes that have a slope ratio of 4:12 or less. It is maximum for slope ratios of 12:12 or greater.
• Formula can be written as: R2 = max[min(1.2-0.05F, 1), 0.6]
• Where "F" is the rise in the slope ratio F:12.
• This slope reduction method for roofs assumes a normal roof that is not expected to have any significant occupancy. If the roof has such an occupancy, then the area reduction for roof live loads may not be taken.

FAR - Floor Area Ratio

The aspects that govern in specifying FAR, some of them being:

• 1. Occupancy class
• 2. Types of construction
• 3. Width of street fronting the building and the traffic load
• 4. Locality where the building is proposed and the density
• 5. Parking facilities
• 6. Local fire fighting facilities
• 7. Water supply and drainage facilities

∴ Floor Area Ratio = Total covered Area/Plot Area

Note:

• Grouting refers to the injection of pump able materials into a soil to change its physical characteristics.
• It is generally a mixture of water, cement and sand.

• Grouting of cracks, joints, etc. is measured in meter whereas bituminous grouting of road metal cement grouting of concrete is done in a square meter.

• Bituminous road surfacing is done in square meter.

• Pitching of brick is done in cubic meter.

Deductions 

related to plastering are as follows:

• For small opening up to 0.5 m2 area, no deduction in plastering is made.
• For opening of size 0.5 m2 to 3 m2 area, deduction is made on one face of the wall.
• For openings of size above 3 m2, deduction is made on both faces of the wall, but the area of sill, jamb and soffits of the opening is added.

There are many other clauses in IS Code such as:

• 1. If both sides of wall are plastered with a different mix
• 2. If only one side of the wall is plastered and other side is not

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