Lesson 6 – Factor Adjustments (Valuation of Personal Property and Fixtures)

Using Assessors' Handbook Section 581 (Equipment Index, Percent Good, and Valuation Factors)

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The exercises below are to be worked by participants to ensure comprehension of information discussed in this lesson. Additionally, it will help prepare certified property tax appraisers for the final examination that must be taken upon completion of this training session in order to receive appraisal training credit.

Before you start, please print the exercises using the “Print Questions” link below so you can work through the exercises on your own. After you work through the exercises, the solution can be viewed by clicking on the blue plus sign immediately following the question on the right hand side of the page. Additionally, when you have completed all the exercises, you may print all of the solutions using the “Print Questions with Answers” link below.

While all the exercises shown below use lien date 2011 for illustrative purposes, it must be remembered that it is the lien date for which values are sought that determines which AH 581 – and associated factors – will be used.

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Exercise 1

Determine the Recommended Maximum Index Factor for the following types of equipment based on the given economic life (service life), as of lien date 2011 (January 1).

row letters	Equipment & Fixtures	Economic Life (in years)
a.	Bakery	15
b.	Circuit Board Manufacturer	8
c.	Demolition Contractor (non-mobile)	12
d.	Golf Carts	6

Solution

Maximum Index Factor Age = Economic Life × 125%

(15 × 125% = 19 years)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

(2011 - 19 years = 1992)

Recommended Index Factor corresponds to Maximum Index Factor Year

152 ⇔ 1992 (2011 AH 581 Table 1 - Commercial)

Maximum Index Factor Age = Economic Life × 125%

(8 × 125% = 10 years)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

(2011 - 10 years = 2001)

Recommended Index Factor corresponds to Maximum Index Factor Year

120 ⇔ 2001 (2011 AH 581 Table 2 - Industrial)

Maximum Index Factor Age = Economic Life × 125%

(12 × 125% = 15 years)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

(2011 - 15 years = 1996)

Recommended Index Factor corresponds to Maximum Index Factor Year

137 ⇔ 1996 (2011 AH 581 Table 3 - Construction)

Maximum Index Factor Age = Economic Life × 125%

(6 × 125% = 8 years)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

(2011 - 8 years = 2003)

Recommended Index Factor corresponds to Maximum Index Factor Year

128 ⇔ 2003 (2011 AH 581 Table 1 - Commercial)

Exercise 2

In 1994, a company purchased light plant equipment for $100,000. If the economic life of light plant equipment (non-mobile construction equipment) is 12 years, what is the recommended maximum index factor for use in valuing this type of equipment, as of lien date 2011 (January 1); and what is its RCN?

Solution

Recommended Maximum Index Factor

Maximum Index Factor Age = Economic Life × 125% (converted to a decimal equivalent)

Maximum Index Factor Age = 15 years (12 years × 1.25)

Maximum Index Factor Year = Valuation Lien Date Year – Maximum Index Factor Age

Maximum Index Factor Year = 1996 (2011 – 15 years)

Recommended Maximum Index Factor = 137 (Table 3 index factor for 1996)

Calculate the Maximum Index Factor Age* for the equipment by multiplying its economic life by 125 percent. (Economic life determined to be 12 years based on a review of the CAA tables, as discussed in Lesson 5.)

12 years × 1.25 = 15 years* (rounded to the nearest whole number)

Calculate the Maximum Index Factor Year for the equipment by subtracting its Maximum Index Factor Age from its valuation lien date year.

Locate the Recommended Maximum Index Factor by finding the construction index factor corresponding to the Maximum Index Factor Year, using 2011 AH 581 Table 3: Agricultural and Construction Equipment Index Factors.

1996 = 137

RCN

Acquisition Year Index Factor = 143 (Table 3 construction index factor for 1994)

The lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor = 137 < 143

RCN = Cost × Index Factor (converted to decimal equivalent)

RCN = $100,000 × 1.37

RCN = $137,000

Determine the Acquisition Year Index Factor by finding the “;construction” equipment index factor corresponding to the year that the equipment being valued was acquired (1994), using Table 3 of the January 2011 AH 581.

1994 = 143

Select the lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor for use in valuing the equipment.

137 < 143

Calculate the RCN (2011) for the equipment, by multiplying the acquisition cost of the equipment by the decimal equivalent of the index factor selected in the preceding step.

RCN = $100,000 × 1.37 = $137,000

Exercise 3

In 1995 a company purchased laboratory centrifuge equipment for $75,000. If the economic life of laboratory equipment is 10 years, what is the recommended maximum index factor for use in valuing the equipment, as of lien date 2011 (January 1); and what is its RCN?

Solution

Recommended Maximum Index Factor

Maximum Index Factor Age = Economic Life × 125% (converted to a decimal equivalent)

Maximum Index Factor Age = 13 years (10 years × 1.25)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

Maximum Index Factor Year = 1998 (2011 - 13 years)

Recommended Maximum Index Factor = 134 (Table 1 index factor for 1998)

Calculate the Maximum Index Factor Age for the equipment, using the formula:

Equipment Economic Life (years) × 125% = Maximum Index Factor Age (years)*.

10 years × 1.25 = 13 years *(rounded to the nearest whole number)

Calculate the Maximum Index Factor Year for the equipment, using the formula:

Valuation Lien Date Year - Maximum Index Factor Age = Maximum Index Factor Year.

2011 - 13 years = 1998

Locate the Recommended Maximum Index Factor by finding the “commercial” equipment index factor corresponding to the Maximum Index Factor Year (1998), using Table 1 of the January 2011 AH 581.

1998 = 134

RCN

Acquisition Year Index Factor = 139 (Table 1 index factor for 1995)

The lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor = 134 < 139

RCN = Cost × Index Factor (converted to decimal equivalent)

RCN = $75,000 × 1.34

RCN = $100,500

Locate the Acquisition Year Index Factor by finding the “;commercial” equipment index factor corresponding to the year that the equipment being valued was acquired (1995), using Table 1 of the January 2011 AH 581.

1995 = 139

Select the lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor for use in valuing the equipment.

134 < 139

Calculate the RCN (2011) for the equipment, by multiplying the acquisition cost of the equipment by the decimal equivalent of the index factor selected in the preceding step.

RCN = $75,000 × 1.34 = $100,500

Exercise 4

In 1987 a cannery operator purchased cannery equipment for $825,000. If the economic life of cannery equipment is 17 years, what is the recommended maximum index factor for use in valuing this equipment, as of lien date 2011 (January 1); and what is its RCN?

Solution

Recommended Maximum Index Factor

Maximum Index Factor Age = Economic Life × 125% (converted to a decimal equivalent)

Maximum Index Factor Age = 21 years (17 years × 1.25)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

Maximum Index Factor Year = 1990 (2011 - 21 years)

Recommended Maximum Index Factor = 143 (Table 2 index factor for 1990)

Calculate the Maximum Index Factor Age for the equipment, using the formula:

Equipment Economic Life (years) × 125% = Maximum Index Factor Age (years)*.

17 years × 1.25 = 21 years *(rounded to the nearest whole number)

Calculate the Maximum Index Factor Year for the equipment, using the formula:

Valuation Lien Date Year - Maximum Index Factor Age = Maximum Index Factor Year.

2011 - 21 years = 1990

Locate the Recommended Maximum Index Factor by finding the “industrial” equipment index factor corresponding to the Maximum Index Factor Year (1990), found in the preceding step, using Table 2 of the January 2011 AH 581.

1990 = 143

RCN

Acquisition Year Index Factor = 161 (Table 2 index factor for 1987)

The lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor = 143 < 161

RCN = Cost × Index Factor (converted to decimal equivalent)

RCN = $825,000 × 1.43

RCN = $1,179,750

Determine the Acquisition Year Index Factor by finding the “industrial” equipment index factor corresponding to the year that the equipment being valued was acquired (1987), using Table 2 of the January 2011 AH 581.

1987 = 161

Select the lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor for use in valuing the equipment.

143 < 161

Calculate the RCN (2011) for the equipment, by multiplying the acquisition cost of the equipment by the decimal equivalent of the index factor selected in the preceding step.

RCN = $825,000 × 1.43 = $1,179,750

Exercise 5

In 1990, a cotton farm purchased four cotton gins for $235,500. If the economic life of non-mobile agricultural equipment is 15 years, what is the recommended maximum equipment index factor for use in valuing the harvester, as of lien date 2011 (January 1); and what is its RCN?

Solution

Recommended Maximum Index Factor

Maximum Index Factor Age = Economic Life × 125% (converted to a decimal equivalent)

Maximum Index Factor Age = 19 years (15 years × 1.25)

Maximum Index Factor Year = Valuation Lien Date Year - Maximum Index Factor Age

Maximum Index Factor Year = 1992 (2011 - 19 years)

Recommended Maximum Index Factor = 157 (Table 3 agricultural index factor for 1992)

Calculate the Maximum Index Factor Age for the equipment, using the formula:

Equipment Economic Life (years) × 125% = Maximum Index Factor Age (years)*.

10 years × 1.25 = 13 years *(rounded to the nearest whole number)

Calculate the Maximum Index Factor Year for the equipment, using the formula:

Valuation Lien Date Year - Maximum Index Factor Age = Maximum Index Factor Year.

2011 - 19 years = 1992

Locate the Recommended Maximum Index Factor by finding the “agricultural” equipment index factor corresponding to the Maximum Index Factor Year (1998) using Table 3 of the January 2011 AH 581.

1992 = 157

RCN

Acquisition Year Index Factor = 167 (Table 3 agricultural index factor for 1990)

The lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor = 157 < 167

RCN = Cost × Index Factor (converted to decimal equivalent)

RCN = $235,500 × 1.57

RCN = $369,735

Determine the Acquisition Year Index Factor by finding the “agricultural” equipment index factor corresponding to the year that the equipment being valued was acquired (1990), using Table 3 of the January 2011 AH 581.

1990 = 167

Select the lesser of the Recommended Maximum Index Factor and the Acquisition Year Index Factor for use in valuing the equipment.

157 < 167

Calculate the RCN (2011) for the equipment, by multiplying the acquisition cost of the equipment by the decimal equivalent of the index factor selected in the preceding step.

RCN = $235,500 × 1.57 = $369,735

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