- 2079 Jestha · 2+6 marks
Fair market value of Tata Sipradi showroom
Short answer
Gross annual income Rs9,60,00,000; outgoings Rs3,63,21,566 including equipment sinking fund Rs1,61,566. Net income Rs5,96,78,434; land interest Rs1,06,40,000; balance capitalized at YP 12.449 (8%, 10%, 60 years) is Rs61,04,65,996; plus land Rs13,30,00,000 gives about Rs74.35 crore.
Assess fair market value of Tata Sipradi Showroom with following information:
- Covered land area = 14 aana @ Rs 95,00,000 per aana prevailing rate
- Built up Showroom = 3355 sqft @ Rs 7200/ sqft of current construction
- Gross monthly income of Showroom = Rs 80,00,000
- Municipal Tax = 8% of gross income
- Monthly Staff Salary and administrative expenses = Rs 2,90,000
- Advertisement expenses (annual) = Rs 60,00,000
- Lifting and other installed equipment costing Rs 58,00,000 with estimated life of 15 yrs undertaken for salvage value with 30% estimated salvage at the end with 7% interest per annum
- Electricity, customer courtesy, solid waste disposal, drinking water supply and other miscellaneous cost = 15% of gross income
- Insurance premium = Rs 40,00,000
- Maintenance cost = Rs 50,000 per month
Consider year's purchase for 60 yrs with prevailing interest rate 8% and 10% redemption of capital.
Method: income (profit) method with dual-rate YP. Net income from the showroom is found after all outgoings, interest on land is deducted (land is not redeemed), the balance is capitalised, and land is added. Insurance and advertisement are taken as annual figures.
Annual gross income = 80,00,000 × 12 = Rs 9,60,00,000
Outgoings
| Item | Calculation | Rs |
|---|---|---|
| Municipal tax | 8% × 9,60,00,000 | 76,80,000 |
| Staff and administration | 2,90,000 × 12 | 34,80,000 |
| Advertisement | annual | 60,00,000 |
| Electricity and other costs | 15% × 9,60,00,000 | 1,44,00,000 |
| Insurance premium | annual | 40,00,000 |
| Maintenance | 50,000 × 12 | 6,00,000 |
| Sinking fund for equipment | see below | 1,61,566 |
| Total outgoings | 3,63,21,566 |
Sinking fund for equipment: depreciable amount = 70% × 58,00,000 = Rs 40,60,000 (30% salvage), n = 15 years, i = 7%:
Net income = 9,60,00,000 − 3,63,21,566 = Rs 5,96,78,434
Land: 14 aana × 95,00,000 = Rs 13,30,00,000 Interest on land at 8% = Rs 1,06,40,000 Net income from building and equipment = 5,96,78,434 − 1,06,40,000 = Rs 4,90,38,434
Year's purchase (60 years, 8%, redemption 10%)
Capitalised value of building = 4,90,38,434 × 12.449 = Rs 61,04,65,996
Market value = building + land = 61,04,65,996 + 13,30,00,000 = Rs 74,34,65,996
(For comparison, the cost of the building = 3355 × 7200 = Rs 2,41,56,000; the market value is far higher because of the business income.)
Answer: Fair market value of the showroom is about Rs 74.35 crore.
✓ Answer checked by Claude Opus 5.5 (high effort)
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