Vietnam Valuation Standards PDF

**MINISTRY OF FINANCE\ \-\-\-\-\-\--** **SOCIALIST REPUBLIC OF VIETNAMINDEPENDENCE - FREEDOM - HAPPINESS \-\-\-\-\-\-\-\-\-\-\-\-\-\--** No. 32/2024/TT-BTC *Hanoi, May 16, 2024* **CIRCULAR** **PROMULGATING VIETNAM\'S VALUATION STANDARDS ON MARKET-BASED APPROACH, COST-BASED APPROACH, INCOME-BASE...

**MINISTRY OF FINANCE\ \-\-\-\-\-\--** **SOCIALIST REPUBLIC OF VIETNAMINDEPENDENCE - FREEDOM - HAPPINESS \-\-\-\-\-\-\-\-\-\-\-\-\-\--** No. 32/2024/TT-BTC *Hanoi, May 16, 2024* **CIRCULAR** **PROMULGATING VIETNAM\'S VALUATION STANDARDS ON MARKET-BASED APPROACH, COST-BASED APPROACH, INCOME-BASED APPROACH** *Pursuant to the Price Law dated June 19, 2023;* *Pursuant to the Government\'s Decree No. 14/2023/ND-CP dated April 20, 2023 defining the functions, tasks, powers and organizational structure of the Ministry of Finance;* *At the request of the Director of the Price Management Department;* *The Minister of Finance promulgates the Circular promulgating Vietnam\'s price appraisal standards on market-based approaches, cost-based approaches, and income-based approaches.* **Article 1.** To promulgate together with this Circular the following Vietnamese price appraisal standards: \- Vietnam\'s price appraisal standards on market approach; \- Vietnam\'s valuation standards on cost-based approach; \- Vietnam\'s valuation standards on the income-based approach. **Article 2. Enforcement effect** 1\. This Circular takes effect from July 1, 2024. 2\. Circular No. 126/2015/TT-BTC dated August 20, 2015 of the Minister of Finance promulgating Vietnam price appraisal standards No. 08, 09 and 10 shall expire from the effective date of this Circular. **Article 3. Implementation organization** 1\. Relevant organizations and individuals shall be responsible for implementing the Vietnam Price Appraisal Standards promulgated together with this Circular. 2\. In the course of implementation, if there are any problems, organizations and individuals are requested to promptly report them to the Ministry of Finance for study and settlement./. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ---------------------- ***Address:\ **KT.**\ ***- Party Central Secretariat;- Prime Minister, Deputy Prime Ministers;- Office of the Party Central Committee and Committees of the Party;- Office of the General Secretary;- Office of the National Assembly, Nationality Council;- Committees of the National Assembly;- Office of the President;- Office of the Government;- Central Committee of the Vietnam Fatherland Front;- Supreme People\'s Procuracy;- People\'s Court Supreme Court;- State Audit;- Ministries, ministerial-level agencies and agencies attached to the Government;- Central agencies of associations and mass organizations;- People\'s Councils and People\'s Committees of provinces and centrally-run cities;- Departments of Finance of provinces and centrally-run cities;- Examination of legal documents, Ministry of Justice;- Official Gazette;- Government Portal;- Website of the Ministry of Finance;- Vietnam Confederation of Commerce and Industry;- Vietnam Valuation Association;- Units under the Ministry of Finance;- Save: VT, QLG (400b). **DEPUTY MINISTER**\ \ \ \ \ **LE TAN CHIEN** ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ---------------------- **VIETNAM PRICE APPRAISAL STANDARDS** APPROACH FROM THE MARKET\ *(Attached to Circular No. 32/2024/TT-BTC dated May 16, 2024 of the Minister of Finance)* **Chapter I** **GENERAL PROVISIONS** **Article 1. Scope of adjustment** This Vietnam Price Appraisal Standard stipulates and guides the approach from the market when appraising prices in accordance with the law on prices. **Article 2. Subjects of application** 1\. Price appraisers and price appraisal enterprises shall provide price appraisal services in accordance with the law on prices. 2\. Organizations and individuals shall carry out the State\'s price appraisal activities in accordance with the law on prices. 3\. Organizations and individuals requesting price appraisal and third parties shall use price appraisal reports under price appraisal contracts (if any). **Article 3. Interpretation of terms** In this Vietnam Price Appraisal Standard, the following terms are construed as follows: 1\. *Comparative property* means an asset that is identical or similar to a property subject to price appraisal. 2\. *Similar property* means an asset of the same type and similar to a property subject to appraisal in terms of use purposes, uses, legal characteristics, economic-technical characteristics, basic characteristics of property appraisal and other factors (if any). 3\. *Indicative price* is the price of a comparable asset after it has been adjusted according to the difference in comparative factors with the appraised property. 4\. *Total net adjustment* value means the total adjustment according to comparative factors taking into account negative signs (downward adjustments) and positive signs (upward adjustments), that is, excluding the absolute value of each adjustment. 5\. *Total gross adjustment value* means the total adjustment according to comparative factors of absolute value. **Article 4. Market Approach** 1\. The approach from the market to determine the value of valuation assets through comparison of valuation assets with comparative assets that already have price information on the market; In case of price appraisal, enterprises may use additional information about the price of the appraisal assets themselves. 2\. Depending on the asset type, the approach from the market can be concretized into methods including the comparison method, the average ratio method and the transaction price method. The average ratio method and the transaction price method are only applicable to enterprise valuation and are specified in the Vietnam Valuation Standards on enterprise valuation. **Chapter II** **COMPARISON METHODOLOGY** **Article 5. Apply the comparison method** 1\. The method of comparison to determine the value of assets for price appraisal is based on the comparison, analysis and evaluation of comparative factors of assets compared with assets for price appraisal, thereby adjusting the price level of comparable assets as a basis for estimating the value of assets for price appraisal. 2\. The comparison method shall be applied to the appraisal of the price of assets subject to transfer or public offering or offer on the market. An asset is considered to have been transferred or offered for purchase or public sale on the market when at least 03 comparable assets from different organizations and individuals have been transferred or offered for purchase or sale on the market near the time of price appraisal and the location of the price appraisal property. 3\. Implementation contents a\) Survey and collect information on comparative assets; b\) Information analysis; c\) Adjust the difference between the appraised property and the comparable property; d\) Determine the indicative prices of comparable assets; dd) Determine the price level of the appraised property. **Article 6. Survey and collect information about comparable assets** 1\. Information on comparative assets, including the legal, economic-technical characteristics of comparable assets; comparative asset prices; time, place and parties to the transfer or offer for purchase or sale; conditions attached to the price and other information (if any). 2\. The survey and collection of information on comparative assets must meet the following requirements: a\) Information collected on comparative assets must be objective and realistic and must be considered and evaluated to ensure that such information can be used before being included in analysis and calculation; prioritize the selection of information arising closest to the time of price appraisal and the location of the price appraisal assets; b\) The amount of information collected must ensure that at least 03 comparable assets have the time of transfer or the time of bidding or offering for sale taking place at or closest to the time of price appraisal but not exceeding 24 months from the time of price appraisal or earlier. In case the price of the asset fluctuates during the period from the time of transfer or the time of offer for purchase or the time of offering for sale of the comparable asset to the time of price appraisal, before adjusting the price of the comparable asset according to the comparative factors, it is necessary to adjust (increase or decrease) the price of the comparative asset at the time of price appraisal and the price appraisal person needs to analyze and calculate it in accordance with the fluctuation of the market price during this period. In case of collecting information on assets offered for sale or purchase, it is necessary to evaluate and analyze market price movements, collected information sources and other price information on the market in order to make adjustments and find appropriate prices (if necessary) before using them as comparative prices; c\) Prioritize the selection of comparative assets that are closest to the valuation assets and are not limited by the administrative boundaries of commune-level and district-level administrative units in the province. In case of expanding the scope of information collection outside the province, the price appraisal person shall clearly state the reasons and limitations (if any) of the expansion of the scope of information collection in the price appraisal report; d\) Information about comparable assets is collected from one or more of the following information sources: contracts; bill; purchase and sale documents; successful trading results on exchanges; mass media; market survey forms; prices stated in documents of state agencies, production and business enterprises; auction and bidding winning results as prescribed; face-to-face interviews; telephone; email or internet; price databases of state agencies, organizations, enterprises and from other sources as prescribed (if any). 3\. Results of survey and collection of information on comparative assets must be displayed and archived in the form of information collection slips on comparative assets enclosed with signatures of information collectors. In case the process of information collection involves the use of additional survey sheets, survey sheets, collection sheets and assessment sheets made directly by the information collectors, the signatures of the information collectors must be present on these sheets. In case of information collected on the internet, the information collection form should refer to the links to the information collected and stored for proof. Information collected on the internet must be information on the official websites of agencies and organizations operating in accordance with law. In case of information collected from quotations offered for purchase or sale, it is necessary to have sufficient information such as name, address, tax identification number (if any) and seal of the quotation unit, time of information provision, and validity of the quotation. **Article 7. Analyze the information** 1\. Analyze information for comparison in order to draw similarities and differences, advantages and disadvantages according to the comparative factors between the appraised property and the comparative property. 2\. Comparative factors include qualitative comparative factors and quantitative comparative factors that show the basic characteristics of the type of property in terms of legal characteristics, transaction status, economic-technical characteristics of the asset and other factors affecting the value of the asset. 3\. The analysis of information according to the comparative factors between the appraisal assets and the comparable assets shall be carried out through the following forms: a\) Quantitative analysis (quantitative analysis): including pair analysis, statistical analysis, regression analysis, cost analysis and other similar analysis methods to find out the adjustment level which is the amount or percentage (%); b\) Qualitative analysis (qualitative analysis): including comparative analysis, ranking analysis and interviews with stakeholders. **Article 8. Adjustment of the difference between appraisal assets and comparative assets** 1\. When adjusting the difference between the appraised property and the comparable property, it is necessary to adjust the quantitative comparison factors (which can be quantified into money) first, and the qualitative comparison factors (which cannot be quantified into money) later. 2\. Contents of adjustment of the difference between the appraised property and the comparative property: a\) Subject of adjustment: means the transferred price or the bid price or the offering price on the market after a reasonable adjustment has been made to the prevailing successful purchase and sale price on the market of the comparable asset; b\) Grounds for adjustment: based on the difference in comparative factors between the comparative property and the property for price appraisal; c\) Principles of adjustment: Take the comparative factors of the appraisal property as the standard as the basis for adjusting the price of the comparable property according to the comparative factors of the appraisal property. When adjusting the price according to the difference of one comparison factor, the other comparison factors are fixed (considered the same). If the factors in the appraisal property are inferior to the comparative assets, the price of the comparative assets shall be adjusted down (-). Factors in the appraisal property that are superior to the comparative asset shall be adjusted upwards (+) the price of the comparative asset. Factors in the appraised property are the same as the comparable property, the price of the comparable property (not adjusted) remains the same. Each adjustment of comparative factors is proven from investigative evidence collected in the market, such as information collection slips; information analysis reports; market research reports or other relevant documents; d\) Method of adjustment: Adjustment by absolute amount: applied to the difference of comparative factors it is possible to determine the absolute adjustment as a specific amount through calculation. Adjustment by percentage: applied to the difference in comparative factors, only the relative adjustment level can be determined according to the proportional, highly estimated; dd) Adjustment level: The price adjustment level due to the difference in comparative factors should be estimated on the basis of transaction information in the market, and at the same time there is an analysis and assessment of the impact of the comparative factors on the asset value; e\) Order of adjustment: Adjust the group of comparative factors on the legal characteristics and transaction status of the asset first, adjust the group of comparative factors on the economic-technical characteristics of the latter asset. The price after adjustment for the group of legal factors and transaction status is used to adjust for the group of factors on the economic-technical characteristics of the asset. When adjusting the price of comparable assets according to each of the above groups of factors, the comparative factors shall be adjusted according to the absolute amount first, adjusted by the following percentage. The price after absolute adjustment is used for percentage adjustment; g\) Principles of control: To ensure that the difference between the price of an asset compared with the indicative price of such asset as prescribed in Article 9 of this Standard is consistent with market evidence. Ensure that the difference between each indicative price and the average price of indicative prices does not exceed 15%. **Article 9. Determine the indicative price of comparable assets** 1\. The indicative price of comparable assets is the basis for estimating the value of the appraised property. 2\. The adjustment according to the comparative factors and determination of the indicative price of the comparable asset is shown in the following adjustment table: -------- ---------------------------------------------------------------- -------------------------- ---------------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- **TT** **Factors of Comparison** **Units of Calculation** **Valuation assets** **Comparative Properties 1** **Comparative Properties 2** **Comparative Properties 3** **Comparative assets\....** **A** **Market Price (Pre-Adjusted Price)** Known Known Known Known **B** **Price after adjustment** **C** **Adjusting Comparative Factors** *C1* Comparison Factor 1 *Adjustment Rate* \% *Adjustment level* Copper *Price after adjustment 1* Copper *C2* Factor 2 *Adjustment Rate* \% *Adjustment level* Copper *Price after adjustment 2* Copper *C3* Comparison Factor 3 *Adjustment Rate* \% *Adjustment level* Copper *Price after adjustment 3* Copper *C4* Comparison Factor 4 *Adjustment Rate* \% *Adjustment level* Copper *Price after adjustment 4* Copper **D** **Indicative price** *D1* Average value of the indicative price Copper *D2* The difference with the average value of the indicative prices \% **E** **Summary of adjusted figures in section C** *E1* Total Gross Adjustment Copper *E2* Total Adjustments Times *E3* Adjustment Amplitude \% *E4* Total net adjustment value Copper -------- ---------------------------------------------------------------- -------------------------- ---------------------- ------------------------------ ------------------------------ ------------------------------ ----------------------------- **Article 10. Determination of the value of appraisal assets** 1\. The determination of the value of the appraisal property shall be carried out on the basis of the indication price of the comparative assets in combination with the analysis of the information quality of the comparative assets (on the source of information, the level of reliability and suitability of the information) and the following criteria: a\) The smallest total gross adjustment value (i.e. the total absolute value of the adjustments is the smallest); b\) The total number of adjustments as little as possible; c\) The adjustment margin (i.e. the level or percentage of adjustment) of a comparison factor is as small as possible; d\) The sum of the smallest net adjustment values means the sum of the smallest adjustments. 2\. In case of necessity, it is necessary to evaluate the movements, developments and fluctuations of market supply and demand before giving the value of the final appraisal asset by the comparison method./. **VIETNAM PRICE APPRAISAL STANDARDS** APPROACH FROM COST\ *(Attached to Circular No. 32/2024/TT-BTC dated May 16, 2024 of the Minister of Finance)* **Chapter I** **GENERAL PROVISIONS** **Article 1. Scope of adjustment** This Vietnam Price Appraisal Standard stipulates the approach from costs when appraising prices in accordance with the law on prices. **Article 2. Subjects of application** 1\. Price appraisers and price appraisal enterprises shall provide price appraisal services in accordance with the law on prices. 2\. Organizations and individuals shall carry out the State\'s price appraisal activities in accordance with the law on prices. 3\. Organizations and individuals requesting price appraisal and third parties shall use price appraisal reports under price appraisal contracts (if any). **Article 3. Interpretation of terms** In this Vietnam Price Appraisal Standard, the following terms are construed as follows: 1\. *The cost-based approach* is a method of determining the value of a value-appraisal asset through the cost of creating an asset with functions and uses identical or similar to the value-appraisal asset and the wear and tear of the value-appraisal asset. 2\. *Physical wear* and tear means the loss of usefulness of an asset leading to a decrease in the value of the property due to material damage to the property or its constituent parts, caused by the impact of time and normal use. 3\. *Functional wear* and tear means a loss of usefulness of an asset leading to a decrease in the value of the asset because the use of such property is not as effective as the use of substitute property. 4\. *Peripheral wear* and tear means the loss of property caused by external factors in terms of economy and location. Peripheral wear and tear due to location factors only for real estate and/or intangible assets related to real estate and occurs when there is a change in infrastructure, landscape, and natural environment factors around the property, leading to a decrease in the value of the property. 5\. *Substitute property* means an asset with similar functions and utility equivalent to property for appraisal of prices, designed, manufactured or built with newer technologies, materials and techniques. 6\. *Total wear and tear value of assets* means the total decrease in the value of assets due to physical, functional and peripheral wear and tear at the time of price appraisal. 7\. *Wear and tear can be remedied* if: a\) Expenses for remedying damaged or obsolete points are less than or equal to the added value from the repair or remedy; b\) Expenses for remedy of damage or obsolescence points greater than the added value from such repairs and remedies necessary to maintain the value of other parts of the appraised property. 8\. *Economic life means* the useful life of an asset that promotes economic efficiency (calculated from the time the asset is 100% completed for production, manufacture or construction and put into use). 9\. *Actual life* is the number of years from the completion of production, manufacture and construction of 100% new assets and put them into use to the time of price appraisal. 10\. *Effective age* means the number of years showing the actual condition of the property appraised at the time of price appraisal. The effective life depends on the maintenance and maintenance of the property. 11\. *Physical life means* the number of years an asset can be used before it is transformed into a state that is no longer usable for the purpose for which it was originally created due to damage or wear and tear due to physical causes, not taking into account the functional obsolescence or the impact of external factors. The physical age can be determined through the manufacturer\'s specifications, the structural characteristics of the asset. 12\. *Replacement cost* means the cost of creating or acquiring 100% new replacement assets at the time of price appraisal. 13\. *Regeneration cost* means the cost calculated at the time of price appraisal to create or acquire assets identical to the assets appraised at 100%. **Chapter II** **SPECIFIC PROVISIONS** **Article 4. When to apply a cost-based approach** The cost-based approach is usually applied in one of the following cases: 1\. There is not enough information in the market to apply the market-based approach and the income-based approach. 2\. Having the intention to create a new property or when appraising the price of a newly constructed work or a newly manufactured property. 3\. Compare and contrast with other approaches to price appraisal. **Article 5. Alternative cost method** 1\. The replacement cost method determines the value of the appraised property on the basis of the difference between the replacement cost and the wear and tear value of the appraised property. 2\. Formula of the alternative cost method: ------------------------------------- --- ------------------------------------------------------------- ---- ----------------------------------------------------------------------------------------------------------------------------------------------------------------- Estimated value of appraisal assets = Replacement costs (including manufacturer/investor profits) \- The total depreciation value of the appraisal asset (excluding the functional wear value of the appraisal asset that has been reflected in the replacement cost ------------------------------------- --- ------------------------------------------------------------- ---- ----------------------------------------------------------------------------------------------------------------------------------------------------------------- **Article 6. Regenerative cost method** 1\. The method of regeneration costs determines the value of the appraised property on the basis of the difference between the regeneration cost and the wear and tear value of the appraised property. 2\. Formula of the renewable cost method: --------------------------- --- ----------------------------------------------------------- ---- ---------------------------------------------- Estimated value of assets = Renewable costs (including Manufacturer/Investor Profits) \- Total depreciation value of appraisal assets --------------------------- --- ----------------------------------------------------------- ---- ---------------------------------------------- **Article 7. Total method** 1\. The sum method (also known as the asset method) determines the value of the appraised property by adding the individual values of the parts of the appraised property. 2\. The total method usually applied to the appraisal of the price of the appraisal property is the enterprises or types of assets whose value depends mainly on the value of the constituent parts of the appraisal property. 3\. Formula of sum method: ------------------------------------- --- -- Estimated value of appraisal assets = ------------------------------------- --- -- In which: Vi: the value of the ith component of the appraisal asset is determined according to the approaches and methods of appraisal specified in the Vietnam Standards for Appraisal of Prices; n: the total number of parts constituting the appraisal property; i: the ith constituent part. **Article 8. Components of regeneration costs, replacement costs and some notes when determining** 1\. Some components of regeneration costs and replacement costs that need to be considered and analyzed in the process of price appraisal include: cost of materials, cost of machinery and equipment, cost of research, testing, labor, transportation, design, consultancy cost, management cost, etc financial expenses during production, construction, non-refundable tax, installation and commissioning costs, contractor profits, profits of manufacturers/investors and payable taxes and fees as prescribed by law and other expenses as prescribed by law. 2\. The determination of reconstruction and replacement costs must be close to the basis of the price appraisal value and the accompanying assumptions of the price appraisal. 3\. When determining the cost of regeneration, but it is not possible to find materials, machinery and equipment identical to the materials, machinery and equipment used to create the appraised property, the application of similar materials, machinery and equipment may be considered. 4\. When determining replacement costs, replacement assets must be determined on the basis of understanding the functions and uses of valuation assets, thereby determining costs for creating or acquiring replacement assets. 5\. Replacement costs and reconstruction costs shall be determined on the basis of collecting and analyzing market information at the time of price appraisal, unless the determination of costs is prescribed by law according to cost norms, unit prices and investment capital rates promulgated by competent state agencies. **Article 9. Producer/investor returns** 1\. Profits of producers/investors in renewables and replacement costs are determined as follows: a\) Determine the average ratio of profit before enterprise income tax to the total cost of goods sold, selling expenses, enterprise management expenses and financial expenses in at least the last 03 years up to the time of price appraisal of at least 03 enterprises whose production and business assets are identical to those of the appraised assets or replacement products on the market. The data must be taken from the audited financial statements of the enterprises; b\) Profits of manufacturers/investors in renewables and replacement costs shall be calculated by multiplying the average ratio determined at Point a of this Clause by (x) renewables and replacement costs, excluding profits of manufacturers/investors. 2\. In case of failure to determine according to the method specified in Clause 1 of this Article, the norms promulgated by competent state agencies (if any) shall be used. **Article 10. Wear value determined by comparative technique** 1\. Comparison technique determines the wear value of an asset through the wear value of similar assets traded on the market. 2\. The determination of wear and tear values is as follows: a\) Collect information and select at least 02 similar assets that have been successfully traded or offered for purchase or sale on the market within 01 year up to the time of price appraisal; b\) On the basis of evaluating a number of basic comparative factors (e.g. sales conditions, financial terms), adjust the transaction prices of similar assets to have indicative prices of similar assets reflecting the characteristics of the appraised assets. In the case of real estate, the value of land use rights or land tax rights (if any) of similar assets should be excluded to reflect the market value of assets on land; c\) Determination of the cost of creating new similar assets at the time of transaction of similar assets (or of assets on land in the case of real estate), which have not been worn out or obsolete but have included profits of producers/investors; d\) Subtract the results at Point c from the results at Point b to determine the wear and tear value of similar assets. Then, determine the wear and tear rate of the comparable assets by dividing the wear value by the cost of creating the new comparable asset. On that basis, determine the wear and tear rate of the appraisal property; dd) Determine the replacement cost or regeneration cost, then multiply it by the depreciation rate determined at Point d to determine the total depreciation value of the appraised asset corresponding to the replacement cost method or the regeneration cost method. **Article 11. Wear value determined by age technique** Determine the wear and tear rate of assets according to age techniques as follows: 1\. Determination of the depreciation rate of the appraisal property: ----------- --- -------------------- -------- Wear rate = Effective lifespan x 100% Economic age ----------- --- -------------------- -------- 2\. Determine the replacement cost or regeneration cost, then multiply (x) the depreciation rate determined in Clause 1 of this Article to determine the total depreciation value of the appraised asset corresponding to the replacement cost method or the regeneration cost method. **Article 12. Technically defined wear value in total** 1\. The total wear and tear value of an asset is determined through the analysis of each type of physical, functional and peripheral wear of the asset and the addition of the value of these types of wear. 2\. Physical wear and tear values are determined in one of the following ways: a\) For recoverable physical wear and tear, the value of physical wear and tear shall be estimated through the cost of remedying and repairing the damage or obsolescence of the property (this cost includes the total cost such as the cost of purchasing new parts, the cost of dismantling old parts) after deducting the income earned from the sale liquidation of dismantled old parts (if any); b\) Determine the physical wear rate based on the analysis of the use value of the asset at the time of price appraisal to estimate the physical wear value. Concrete: -------------------- --- ---------------------------- -------- Physical wear rate = Levels used x 100% The level of use of design -------------------- --- ---------------------------- -------- Determine the replacement cost or regeneration cost, then multiply (x) the determined physical wear rate to determine the physical wear value corresponding to the replacement cost method or the regeneration cost method; c\) Determine the physical wear and tear rate through the effective age ratio and the physical age of the appraisal property. Formula: -------------------- --- -------------------- -------- Physical wear rate = Effective lifespan x 100% Physical Age -------------------- --- -------------------- -------- Determine the replacement cost or regeneration cost, then multiply (x) the determined physical wear rate to determine the physical wear value corresponding to the replacement cost method or the regeneration cost method; d\) Determine the physical wear rate based on the assessment of the wear and tear level of the main structures of the property. On the basis of information and surveys of appraisal assets, use the opinions of experts with long-term working experience related to appraisal assets to assess the proportion of each main structure in the total value of assets, the degree of damage, and the remaining quality of each main structure; From there, the percentage of physical wear and tear value of the appraised asset is determined according to the following formula:  In which: H: The physical wear and tear rate of the appraised property is calculated as a percentage; Hi: Physical wear of the ith main structure in percentage; Ti: The proportion of the ith main structure in the total value of the appraised assets; n: Total number of principal structures of the appraisal property; I: The main structure I. Determine the replacement cost or regeneration cost, then multiply (x) the determined physical wear rate to determine the physical wear value corresponding to the replacement cost method or the regenerative cost method. 2\. Determination of functional wear value: a\) Functional wear includes: Functional wear due to high capital costs and functional wear due to high operating costs; b\) For remediable functional wear and tear, the value of functional wear and tear shall be calculated as the total cost of remediation after deducting the income (if any) from the sale and liquidation of dismantled or replaced parts (if any); c\) Functional wear due to high capital cost is a case of change in design, production materials or use of new technology, leading to the creation of alternative assets with similar functions but with investment costs lower than those of appraised assets. Functional wear and tear due to irreparable high capital costs is determined through the difference between the regeneration cost and the replacement cost of the asset in case the regeneration cost is higher than the replacement cost of the same asset; d\) Functional wear due to high operating costs is a case of change in design, technology or outstanding productivity, leading to the creation of alternative assets with lower operating and production costs than the appraised assets. Determining the value of functional wear due to high operating costs that cannot be remedied is carried out as follows: Analyze the operation report of the appraisal asset to determine the operating cost calculated per unit of product generated by the appraisal asset; Determine the operating cost calculated per unit of product generated by the replacement asset. Then, determine the difference in operating costs according to the product unit generated by the appraisal asset and the substitute asset; Estimate the remaining useful life of the asset that promotes economic efficiency from the time of price appraisal; Determine the total difference in annual operating costs through the number of products generated annually of the appraised assets and the difference in operating costs throughout the remaining economic life of the appraised assets; Deduction of the total difference in annual operating expenses corresponding to the impact of corporate income tax applied to the additional income (due to the use of substitute assets with lower operating costs than appraised assets); Modernize the total difference in annual operating costs (during the remaining economic life of the asset) at the time of price appraisal with a discount rate reflecting the risks associated with the use of the asset for price appraisal; dd) When determining and estimating functional wear values, it is necessary to analyze and reason closely to avoid duplication leading to distorting results. 3\. Determination of peripheral wear value Peripheral wear and tear includes economic wear and tear due to location. This type of wear and tear is often irreparable. Determine the value of external wear and tear through the analysis of information from the market, direct capitalization of the income lost due to peripheral wear, or apply the method of subtracting the physical and functional wear value from the total wear and tear value of the asset. The value of peripheral wear is usually determined after determining the value of physical wear and functional wear due to peripheral wear generated by external factors, independent of the appraisal asset. a\) Estimation of peripheral wear and tear through the analysis of information from the market. Use market analysis to determine the value of appraisal assets by analyzing information on similar assets that have successfully traded in the market; b\) Estimation of peripheral wear and tear through the direct capitalization of lost income. When an asset generates income, the income is lost due to external economic factors, the position can be capitalized to determine the total income lost in the total value of the asset. The total income lost corresponds to the value of peripheral attrition. The estimation of total lost income is carried out as follows: Market analysis (related to economic factors, location) to determine the value of the lost income annually; Localize the lost income annually to determine the total value of the loss affecting the value of the asset. If the annual loss of income is stable and regular, the realization of the income stream is carried out by capitalizing the annual loss of income at an appropriate capitalization rate. If the income loses annual fluctuations, the realization of the income stream is carried out by analyzing the discounted cash flow. The determination of the capitalization rate and analysis of discounted cash flows shall be carried out in accordance with the re-regulation of the Vietnam Valuation Standards on the approach from income./. **VIETNAM PRICE APPRAISAL STANDARDS** APPROACH FROM INCOME **\ ***(Attached to Circular No. 32/2024/TT-BTC dated May 16, 2024 of the Minister of Finance)* **Chapter I** **GENERAL PROVISIONS** **Article 1. Scope of adjustment** This Vietnam Price Appraisal Standard stipulates and guides the implementation of the approach from income when appraising prices in accordance with the law on prices. **Article 2. Subjects of application** 1\. Price appraisers and price appraisal enterprises shall provide price appraisal services in accordance with the law on prices. 2\. Organizations and individuals shall carry out the State\'s price appraisal activities in accordance with the law on prices. 3\. Organizations and individuals requesting price appraisal and third parties shall use price appraisal reports under price appraisal contracts (if any). **Article 3. Interpretation of terms** In this Vietnam Price Appraisal Standard, the following terms are construed as follows: 1\. *Income-based approach* means a method of determining the value of an asset through the conversion of future cash flows obtained from an asset to its present value. 2\. *Direct capitalization method* means a price appraisal method to determine the value of an asset on the basis of converting the annual stable net income stream expected to be obtained from the asset to its present value through the use of an appropriate capitalization rate. 3\. *Discounted cash flow method* means a price appraisal method that determines the value of an asset on the basis of converting future cash flows expected to be obtained from an asset to its present value through the use of appropriate discount rates. 4\. *Capitalization rate* means the rate used to convert the expected annual stable net income stream from an asset to its present value. 5\. *Discount rate* means the rate used to convert future income streams to present value. 6\. Asset *value at the end of the forecast period* is the expected value of the asset at the end of the discount cash flow forecast period (at the end of the discount cash flow analysis period). **Article 4. Income-based approach and valuation methods used in income-based approach** 1\. The income-based approach is applied to assets that generate income for owners/users, can forecast future income from assets and calculate the appropriate capitalization rate or discount rate. 2\. The method of price appraisal used in the way of inheritance is the direct capitalization method and the discounted cash flow method applied to assets that meet the conditions specified in Clause 1 of this Article, except for the following cases: a\) For assets being enterprises, the price appraisal method used in the approach from income is the method of discounting the free cash flow of the enterprise, the method of discounting the dividend flow and the method of discounting the free cash flow of equity, which shall comply with the provisions of the Vietnam Valuation Standards on Valuation of Enterprises; b\) For intangible assets, the price appraisal method used in the income-based approach is the intangible asset use levy method, the superior profit method and the additional income method, which shall comply with the provisions of the Vietnam Valuation Standards on Valuation of Intangible Assets. **Chapter II** **DIRECT CAPITALIZATION METHOD** **Article 5. Apply the direct capitalization method** 1\. Formula in the direct capitalization method In which: V: Value of appraised assets I: Net income from assets R: Capitalization Rate 2\. Implementation contents: a\) Determination of net income brought by assets; b\) Determination of the capitalization rate; c\) Determine the value of assets according to the direct capitalization formula. **Article 6. Determination of net income brought by assets (I)** 1\. Formula for determining net income: ------------ --- -------------------------- ---- ----------------------------------------------------------------- ---- ----------------- Net income = Total potential earnings \- Revenue loss due to not using 100% of capacity and payment risk \- Operating costs ------------ --- -------------------------- ---- ----------------------------------------------------------------- ---- ----------------- 2\. The determination of total potential income, loss of revenue and operating expenses shall be carried out on the basis of information surveyed on the market of at least 03 similar assets, with reference to past income and operating expenses of the appraised assets, the situation of supply and demand, the development prospects of the industry and field market and other factors affecting the forecast of total potential income, revenue loss, and expected operating expenses of appraisal assets. 3\. Total potential income is determined as the total number of stable and annual incomes obtained from the full exploitation of asset capacity. 4\. Loss of revenue that does not use up 100% of the capacity and the risk of payment is determined by the loss rate multiplied by (x) the total potential income, in which the loss rate is estimated from the collection and analysis of information of similar assets in the market. 5\. Operating expenses are defined as annual expenses necessary for the maintenance of income streams from assets. 6\. Total potential income and operating expenses may be calculated before or after income tax on the basis of the purpose of price appraisal, characteristics of the property to be appraised priced, information collected, basis for value of price appraisal, method of price appraisal for specific types of assets and must be consistent with the method of determining the capital rate chemical. **Article 7. Determining the capitalization rate (R)** 1\. Based on the purpose of price appraisal, characteristics of the appraised assets, the basis of the appraisal value and the collected information, the capitalization rate shall be determined through one of two methods: the comparative method and the loan-investment capital analysis method. 2\. Comparison method a\) The method of comparison to determine the capitalization rate applicable to assets subject to price appraisal by comparing and drawing from the capitalization rates of similar assets on the market; b\) In order to determine the capitalization ratio, it is necessary to investigate, survey and collect information of at least 03 comparable assets on the market, including information on transaction prices, use purposes, financial terms, market conditions at the time of purchase and sale, characteristics of buyers and sellers, etc operating income, operating expenses, revenue loss rate due to not using 100% of capacity and payment risk and other related factors. In case the comparative assets have different factors from the appraised assets, it is necessary to adjust these different factors; c\) The method of calculation of net income and operating expenses applied to comparable assets must be consistent with the calculation method applied to appraised assets. The transaction price of the comparable asset must reflect the current market conditions as well as the future market conditions similar to that of the appraised asset. 3\. Methods of analysis of loans - equity a\) The method of analysis of loans - equity capital determines the capitalization rate based on the weighted average of the loan capitalization coefficient and the capitalization rate of equity, in which the numerical weight is the proportion of capital mobilized from different sources invested in assets. This method applies to assets invested by ownership and borrowed capital; b\) In order to determine the capitalization ratio, it is necessary to investigate, survey and collect information related to the source of ownership capital and the source of loan capital, including: ratio of capital ownership, ratio of borrowed capital, payment term, number of payment periods, loan interest, expectations of investors from the investment, etc. the ability to recover investment capital and other relevant factors; c\) The loan capitalization coefficient is the ratio of the annual debt payment (including capital and interest) to the principal loan capital. The loan capitalization coefficient is calculated by multiplying the payment in each period (including principal and interest) by the number of payable periods in the year and dividing by the total principal loan amount; d\) Equity capitalization rate is the rate used to capitalize income from ownership. The capitalization ratio is calculated by dividing the annual return on equity by the total amount of equity. The method of determining the equity capitalization ratio is usually determined through market surveys, analyzing information of comparable assets. **Chapter III** **DISCOUNTED CASH FLOW METHOD** **Article 8. Applying the discounted cash flow method** 1\. Formula in the discounted cash flow method a\) General formula:  b\) Formula in some specific cases: \- For single-stage cash flows, annual cash flows are equal and equal to the constants A, t → n \- For two-stage cash flow: \* In case the annual cash flow varies to year n, from year n + 1 onwards is stable, t → ∞.  \* In case the annual cash flow varies to year n, from year n + 1 onwards, it grows steadily at the rate of g%/year (with g \< r) and t → ∞:  In which: V: Value of appraised assets CFt: T-year cash flow Vn: Asset value at the end of the forecast period n: Future cash flow forecast period r: Discount Rate t: Forecast year g : Growth rate of cash flow 2\. Implementation contents: a\) Determine the forecast period for future cash flows; b\) Determine the forecasted cash flow on the basis of estimates of incomes from assets and estimates of expenses related to the exploitation and operation of assets; c\) Determination of the value of assets at the end of the forecast period; d\) Determination of the discount rate; dd) Determine the value of assets according to the discounted cash flow formula. **Article 9. Determine the future cash flow forecast period (n)** 1\. The determination of the forecast period of future cash flows shall be based on the purpose of price appraisal, characteristics of the appraisal assets, collected information and the basis of the appraisal value. Cash flow can have one or more stages 2\. The forecast period of future cash flow is determined on the basis of the following factors: a\) The economic life of the appraised property; b\) The stage of the intended holding of the property for appraisal of prices; c\) The reliability of the information collected during the forecast period; d\) The period of forecasting future cash flows should be long enough for the appraised assets to reach a relatively stable income level and be able to calculate the value of the assets at the end of the forecast period. **Article 10. Cash Flow Determination (CF)** 1\. Estimation of income from assets a\) Incomes from assets are amounts of money received by investors from investment in assets; b\) The estimate of income shall be based on the following economic-technical characteristics of the appraised property; past income of appraised assets and/or income of similar assets; industry, sector market and other factors affecting the forecast of total income; c\) Income from assets may be net operating income or total potential income, depending on information and data collected. 2\. Estimation of expenses related to the exploitation and operation of assets a\) Expenses related to the exploitation and operation of assets include expenses necessary for the maintenance of incomes from the exploitation and operation of assets (taking into account interest expenses); b\) The cost estimate shall be based on the economic-technical characteristics of the appraised assets; the past cost of the appraised property and/or the cost of similar property; industry, sector, and other factors that affect cost forecasting. 3\. Cash flow (CF) is defined as the difference between income from assets and expenses related to the exploitation and operation of assets. Cash flow (CF) can be cash flow before income tax or after income tax, based on the purpose of price appraisal, characteristics of the appraisal property, collected information, valuation value base, price appraisal method for a specific type of asset and must be consistent with the method of determining the discount rate. **Article 11. Determining the value of assets at the end of the forecast period (VN)** 1\. The value of assets at the end of the forecast period may be the liquidation or disposal value of assets or the market value of similar assets at the end of the forecast period. 2\. In case the asset is continued to be used in the following years of the forecast year, the value of the asset at the end of the forecast period shall be determined by the formula for determining Vn for the two-stage cash flow specified at Point b, Clause 1, Article 8 of this Standard. **Article 12. Determine the discount rate (r)** 1\. The discount rate should reflect the change in value of money over time, risks related to cash flows arising from valuation assets and the use of valuation assets in the future. 2\. Discount rates may be the same or different at forecast years. The determination of the discount rate must be grounded and reasoned, depending on the basis of the valuation value, the purpose of price appraisal, the type of asset to be appraised, the economic age of the asset or the period of holding the asset, geographical differences, exchange rate (if any) and the type of cash flow to be considered. 3\. The discount rate is determined through information from the market and by one of the following methods: the method of statistical average rate of return of similar assets on the market; cost of using weighted average capital (WACC); capital asset valuation model (CAPM)./.