Vietnam's Valuation Standards Circular
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Questions and Answers

What is the primary focus of the Circular issued by the Ministry of Finance?

  • Guidelines for financial auditing procedures.
  • Standards for price appraisal methods. (correct)
  • Promulgation of tax regulations.
  • Establishment of new governmental departments.

Which approaches are included in Vietnam's valuation standards according to the Circular?

  • Trade-based approach, cost-based approach, income-based approach.
  • Market-based approach, dynamic analysis approach, income-based approach.
  • Market-based approach, cost-based approach, income-based approach. (correct)
  • Benchmarking approach, cost-based approach, market analysis approach.

When does the Circular take effect?

  • Immediately upon promulgation.
  • On June 30, 2024.
  • On July 1, 2024. (correct)
  • On July 1, 2023.

What will happen to Circular No. 126/2015/TT-BTC following the enactment of this Circular?

<p>It will be replaced by this new Circular. (A)</p> Signup and view all the answers

Who is responsible for the implementation of the Vietnam Price Appraisal Standards?

<p>Relevant organizations and individuals. (A)</p> Signup and view all the answers

What does the variable Hi represent in the physical wear and tear calculation?

<p>Physical wear of the ith main structure in percentage (A)</p> Signup and view all the answers

Which type of functional wear is caused by high operating costs?

<p>Functional wear due to outstanding productivity (A)</p> Signup and view all the answers

How is functional wear value determined for remediable functional wear and tear?

<p>By calculating total costs and deducting income from liquidation (A)</p> Signup and view all the answers

What does the variable Ti denote in the context of appraisal assets?

<p>Proportion of the ith main structure in the total value of appraised assets (A)</p> Signup and view all the answers

The physical wear and tear rate is calculated as what?

<p>A percentage based on specific structure assessments (B)</p> Signup and view all the answers

Which of the following best describes irreparable high capital costs?

<p>Costs resulting from a significant design change with alternative assets having lower costs (D)</p> Signup and view all the answers

What does the income-based approach aim to determine?

<p>The future cash flows converted to present value (B)</p> Signup and view all the answers

Who is the Deputy Minister mentioned in the document?

<p>Le Tan Chien (A)</p> Signup and view all the answers

What is the main focus of the attached Circular No. 32/2024/TT-BTC?

<p>Price Appraisal Standards (C)</p> Signup and view all the answers

Under what condition should the direct capitalization method be used?

<p>When the annual income loss is stable and regular (A)</p> Signup and view all the answers

What is evaluated to determine the total value of the loss affecting an asset?

<p>The localized lost income annually (B)</p> Signup and view all the answers

When was the Circular No. 32/2024/TT-BTC issued?

<p>May 16, 2024 (D)</p> Signup and view all the answers

Which method is appropriate for analyzing an income stream with annual fluctuations?

<p>Discounted cash flow analysis (D)</p> Signup and view all the answers

What is the primary approach to the standards discussed in the document?

<p>Market Approach (A)</p> Signup and view all the answers

What aspect of annual income is capitalized in the income-based approach?

<p>Annual loss of income at a capitalization rate (B)</p> Signup and view all the answers

Which ministry is associated with the issuance of Circular No. 32/2024/TT-BTC?

<p>Ministry of Finance (B)</p> Signup and view all the answers

Which article begins the general provisions in Chapter I?

<p>Article 1 (C)</p> Signup and view all the answers

What role do price appraisers have according to the article?

<p>To offer price appraisal services under the law (B)</p> Signup and view all the answers

What is the legislative date mentioned for the Circular?

<p>May 16, 2024 (D)</p> Signup and view all the answers

Which of the following represents a misconception about the capitalization rate?

<p>It can be determined solely from historical data (C)</p> Signup and view all the answers

Which chapter outlines the general provisions?

<p>Chapter I (D)</p> Signup and view all the answers

What action should be taken when external factors cause income to be lost?

<p>Capitalize the total income lost to reflect asset value (C)</p> Signup and view all the answers

What type of standards does this document discuss?

<p>Price Appraisal Standards (A)</p> Signup and view all the answers

How is the document categorized in terms of legislative structure?

<p>Circular (B)</p> Signup and view all the answers

What is the position of Le Tan Chien?

<p>Deputy Minister (B)</p> Signup and view all the answers

Circular No. 32/2024/TT-BTC relates to procedures in which sector?

<p>Finance (A)</p> Signup and view all the answers

Which criterion aims to ensure the lowest total gross adjustment value in asset appraisal?

<p>The smallest total gross adjustment value (D)</p> Signup and view all the answers

What format does the document follow for standards and guidelines?

<p>Market Analysis (C)</p> Signup and view all the answers

What is the main goal of evaluating market supply and demand movements before finalizing asset appraisal?

<p>To enhance the reliability of the appraisal process (A)</p> Signup and view all the answers

What is the significance of the information provided in the Circular?

<p>To standardize price appraisal across Vietnam (B)</p> Signup and view all the answers

What defines the cost-based approach in price appraisal?

<p>Determining value through the cost of creating an asset (B)</p> Signup and view all the answers

Which of the following factors is not considered in the smallest total gross adjustment value?

<p>The average market price of similar assets (B)</p> Signup and view all the answers

What does physical wear and tear refer to in appraisal terms?

<p>Loss of usefulness from material damage (A)</p> Signup and view all the answers

Which entity is primarily responsible for price appraisal services according to the Vietnam Price Appraisal Standard?

<p>Price appraisers and appraisal enterprises (D)</p> Signup and view all the answers

In the context of the comparative asset analysis, what should be the goal regarding the adjustment margin?

<p>To keep the adjustment margin as small as possible (C)</p> Signup and view all the answers

For whom is the price appraisal report primarily intended?

<p>Organizations and individuals requesting appraisal (A)</p> Signup and view all the answers

Which factor is NOT considered when determining the capitalization rate using the comparison method?

<p>Number of employees at the appraised asset (A)</p> Signup and view all the answers

What is essential for the calculation of net income and operating expenses in comparable assets?

<p>Consistency with the method applied to appraised assets (C)</p> Signup and view all the answers

Which aspect is NOT part of the information needed to determine the capitalization ratio using asset loans?

<p>Current debt ratio (C)</p> Signup and view all the answers

In the loan capitalization coefficient calculation, what does NOT factor into the calculation?

<p>Market value of the asset (C)</p> Signup and view all the answers

Which of the following descriptions best defines the equity capitalization rate?

<p>The rate used to capitalize income from ownership (B)</p> Signup and view all the answers

What adjustment is necessary when comparing assets in the comparison method?

<p>Adjusting financial terms to match appraised assets (B)</p> Signup and view all the answers

How is the loan capitalization coefficient calculated?

<p>Multiplying payments by number of periods divided by principal loan capital (B)</p> Signup and view all the answers

What type of assets does the analysis of loans - equity capital method apply to?

<p>Assets invested by both ownership and loan capital (C)</p> Signup and view all the answers

Flashcards

Vietnam's Valuation Standards

A set of guidelines for determining the fair market value of assets, businesses, or properties in Vietnam.

Market Approach

A valuation method that relies on comparing the subject property to similar properties that have recently been sold in the market.

Cost-Based Approach

A valuation method that estimates the value of an asset based on the cost of replacing it with a new, identical asset.

Income-Based Approach

A valuation method that assesses the value of an asset based on its potential to generate future income.

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Effective Date

The date from which a law or regulation becomes legally binding and enforceable.

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Deputy Minister

A high-ranking official who assists the Minister in a government department.

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Le Tan Chien

The name of a Deputy Minister in the Vietnamese government.

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Vietnam Price Appraisal Standards

A set of guidelines and rules used to evaluate the value of goods and services in Vietnam.

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Circular No. 32/2024/TT-BTC

A legal document issued by the Minister of Finance outlining regulations for the Vietnam Price Appraisal Standards.

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Chapter I

The first section of the Vietnam Price Appraisal Standards document, covering general provisions.

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General Provisions

Basic rules and principles that apply to all aspects of the Vietnam Price Appraisal Standards.

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Article 1

The first specific rule or provision outlined in Chapter I of the Vietnam Price Appraisal Standards document.

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What is the cost-based approach?

A method of determining the value of an asset by calculating the cost of creating a new, identical or similar asset and subtracting the asset's depreciation.

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What is physical wear and tear?

The loss of an asset's usefulness due to material damage caused by time and normal use. It leads to a decrease in the asset's value.

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What is the smallest total gross adjustment value?

When comparing similar assets, the best one is the one with the smallest total amount of adjustments needed to make it identical to the target asset.

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Why is the total number of adjustments important?

Fewer adjustments mean the comparative asset is more similar to the target asset, increasing the reliability of the valuation.

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What is the adjustment margin?

The percentage or level of adjustment needed to make a comparative asset identical to the target asset.

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What is the sum of the smallest net adjustment values?

The total amount of adjustments required to make a comparative asset identical to the target asset, representing the overall difference in value.

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Why is it important to consider market supply and demand?

Before determining the final value, it's crucial to understand market trends to ensure the appraisal reflects current market conditions.

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Who are the subjects of this Vietnam Price Appraisal Standard?

Price appraisers, price appraisal enterprises, organizations, individuals carrying out state price appraisal activities, and those requesting or using price appraisals.

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Physical Wear Rate

The percentage representing the amount of physical deterioration an asset has experienced due to age, use, and environmental factors.

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Main Structure Proportion (Ti)

The percentage that each major component of an asset contributes to the total value of the asset.

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Physical Wear Value

The estimated monetary value of the physical deterioration of an asset compared to a new one.

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Functional Wear

The decrease in value of an asset due to changes in technology, design, or operating costs, making it less efficient or desirable.

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Remediable Functional Wear

Functional wear that can be fixed through repairs or upgrades, leading to an increase in the asset's value.

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Irreparable Functional Wear

Functional wear that cannot be easily fixed or upgraded, leading to a permanent decrease in the asset's value.

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Functional Wear due to High Capital Costs

A decrease in value because newer alternatives with similar functions are available at a lower initial investment cost.

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Functional Wear due to High Operating Costs

A decrease in value because newer alternatives with similar functions have lower operating costs.

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Comparison Method

A valuation method that compares the subject asset to similar assets on the market to determine its capitalization rate.

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Comparable Assets

Assets that are similar to the subject asset in terms of properties, use, and market conditions, used for comparison in the valuation process.

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Adjusting for Differences

When comparable assets have factors that differ from the subject asset, adjustments are made to account for these variations and ensure accurate comparison.

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Loan-Equity Analysis

A valuation method that determines the capitalization rate based on the weighted average of loan capitalization and equity capitalization rates.

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Loan Capitalization Coefficient

The ratio of annual debt payments (including principal and interest) to the principal loan capital.

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Equity Capitalization Rate

The rate used to capitalize income from ownership or equity investment.

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Sources of Capital

Information about the origin of capital used to acquire an asset, including ownership capital and loan capital.

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Factors Affecting Capitalization Rate

Factors such as payment terms, loan interest rates, investor expectations, and investment recovery potential influence the capitalization rate.

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Peripheral Attrition

Loss of income from an asset due to external economic factors.

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Capitalization Rate

A rate used to convert a steady stream of future income into a present-day value.

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What is the Direct Capitalization Method?

A valuation method that converts a steady stream of annual net income into its current worth using a capitalization rate.

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When is the Discounted Cash Flow Method Used?

Used when the income from an asset has yearly fluctuations making a steady stream of income unreliable.

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What does the Vietnam Price Appraisal Standard regulate?

This standard provides guidelines for implementing the income-based approach in property valuation.

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What does it mean to localize lost income?

Converting the loss of income from an asset to its total value.

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What subject is covered in Article 2 of the Vietnam Price Appraisal Standard?

Article 2 defines the individuals and organizations allowed to carry out price appraisal services.

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What is the objective of the Income-based Approach?

To determine the value of an asset by converting future cash flows into their present value.

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Study Notes

Circular Promulgating Vietnam's Valuation Standards

  • Purpose: To promulgate Vietnam's valuation standards for market-based, cost-based, and income-based approaches.
  • Basis: Based on Price Law (June 19, 2023) and Government Decree (April 20, 2023) about Ministry of Finance functions.
  • Effective Date: July 1, 2024
  • Expiration Date: August 20, 2015 Circular (No. 126/2015/TT-BTC) becomes invalid.
  • Enforcement: Applicable to relevant organizations and individuals, who should report any issues to the Ministry of Finance.

Vietnam's Valuation Standards

  • Market Approach: Standards for appraising prices based on market comparisons.
  • Cost Approach: Standards for appraising prices based on the cost of creating similar assets.
  • Income Approach: Standards for appraising prices based on the income derived from the assets.

Circular Implementation

  • Organizations: Relevant organizations and individuals are responsible for implementing the new standards.
  • Procedure: If problems arise during implementation the relevant parties should promptly report these problems to the Ministry of Finance for resolution.

Key Definitions

  • Comparative Property: An asset that is the same or similar to the appraised asset.
  • Similar Property: An asset similar in use, legal characteristics, economic-technical characteristics, and basic appraisal traits to the asset being appraised.
  • Indicative Price: A comparable asset's adjusted price based on differences from the appraised asset.
  • Total Net Adjustment Value: Total cost adjustment taking into account both upward and downward adjustments.
  • Total Gross Adjustment Value: Total cost adjustment, using the absolute value of all adjustments.
  • Market Approach: Valuation based on comparing assets with similar ones that have market prices.
  • Methods (Market Approach): Comparison, average ratio, and transaction price methods (depending on asset type).

Comparison Methodology

  • Purpose: Determine asset value through comparison between appraised assets and comparable assets.
  • Application: Used for assets subject to transfer or public sale (or 3 comparable assets).
  • Implementation: Survey and gather information about comparable assets, analyze, adjust for differences, and determine indicative prices for comparable assets to gauge the value of the asset in appraisal.

Survey and Collection of Comparable Assets

  • Requirements: Objective and realistic, based on time closeness to the appraisal date and asset location.
  • Minimum Comparable Assets: At least three must be considered with transfer or offer dates within the last 24 months of appraisal date.
  • Information Gathering Sources: Official websites, contractual documents, reports, and interviews with relevant parties to collect data about comparable assets.
  • Recording: Results must be documented and archived in a standardized information collection form.

Analysis of Comparable Assets

  • Qualitative factors: Include characteristics like legal status, economic performance, technical traits, and other key traits.
  • Quantitative factors: Include factors that can be expressed numerically or as a percentage.
  • Comparison Types: Pairwise analysis, statistical analysis, regression analysis, and interviews with stakeholders.
  • Adjustment Includes factors such as location, size for real estate and other related characteristics.

Cost Approach

  • Definition: Determines value based on the cost to create a similar asset with the same function.
  • Types of Wear:
    • Physical wear (normal use)
    • Functional wear (use efficiency from substitute asset replacement)
    • Peripheral wear (local factors change value).
  • Regeneration/Substitute Property: A comparable alternative (newer design/material) used to determine value.
  • Total Wear Value: Total decline in value due to all wear categories determined through the combination of costs for repairs/replacements, income from sale of parts, and appropriate age/life estimates.

Income Approach

  • Definition: Value derived from converting future income streams into present value using appropriate discount rates.
  • Methods:
    • Direct capitalization: A method to turn stable income projections into present value.
    • Discounted cash flow: A method to project the future income streams of assets and then converting them into a present value.

Determination/Calculation specifics

  • Factors: Include those related to total potential income like market conditions, capacity/risk of capacity, and operating costs.
  • Capitalization Rate: Determined using comparative methods or financial analysis methods.

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Related Documents

Vietnam Valuation Standards PDF

Description

This quiz covers Vietnam's valuation standards based on market, cost, and income approaches. It also outlines the purpose, basis, effective date, and enforcement of the circular, highlighting the responsibilities of relevant organizations and individuals. Test your knowledge on these important regulatory standards in Vietnam.

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