---
title: "Capitalised value from Rs 20,000 monthly rent"
subject: "Construction Management"
chapter: 13
key: "semester_8/construction_management:value-building-20000-rent-2078"
source: https://www.bctengineer.com/q/semester_8/construction_management/value-building-20000-rent-2078
site: BCT Engineering
---

# Capitalised value from Rs 20,000 monthly rent

Construction Management · Chapter 13: Valuation

- Asked in: 2078 Kartik, 5 marks
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/value-building-20000-rent-2078
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13

## Question

A building fetches a gross rent of Rs. 20,000.00 per month. Assuming 25% outgoings for taxes, 20% for repairs and maintenance and 5% to set aside to accumulate the cost of building. Determine its capitalised value at the rate of interest on capital as 6% per annum and 4% on sinking fund installment.

## Short answer

Annual gross rent Rs2,40,000; outgoings 25% taxes, 20% repairs, and 5% sinking-fund set-aside total Rs1,20,000, leaving net income Rs1,20,000. At 6% interest, YP 16.67 gives capitalized value Rs20,00,000.

## Answer

**Given:** Gross rent = 20,000 × 12 = Rs 2,40,000 per year.

**Outgoings and set aside**
- Taxes 25% = Rs 60,000
- Repairs and maintenance 20% = Rs 48,000
- Amount set aside for sinking fund (to replace the building cost), 5% = Rs 12,000
- Total = Rs 1,20,000

**Net income** = 2,40,000 − 1,20,000 = Rs 1,20,000

The 5% set-aside accumulates at 4% (sinking fund rate) to replace the cost of the building, so it is deducted from the gross rent as an outgoing. The remaining net income is capitalised at the interest rate of 6%.

$$
YP = \frac{100}{6} = 16.67
$$

$$
\text{Capitalised value} = 1{,}20{,}000 \times 16.67 = Rs\ 20{,}00{,}000
$$

**Answer: Capitalised value of the property is Rs 20,00,000.**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. How is the 5% set aside for accumulating the building cost treated?
   A. Added to the net income
   B. Deducted from gross rent along with other outgoings
   C. Ignored since 4% is given
   D. Used as the yield rate
   Answer: B. The set-aside replaces the building cost, so it is deducted as an outgoing; the rest is capitalised. (Key point: Sinking fund set aside as outgoing)

2. Gross rent is Rs 2,40,000 a year. With taxes 25%, repairs 20% and set aside 5%, what is the net income?
   A. Rs 1,20,000
   B. Rs 1,32,000
   C. Rs 60,000
   D. Rs 1,80,000
   Answer: A. Total deductions 50% = Rs 1,20,000, leaving Rs 1,20,000. (Key point: Net income)

3. At what rate is the remaining net income capitalised?
   A. 4% sinking fund rate
   B. 5% set aside rate
   C. 6% interest on capital
   D. 10% combined rate
   Answer: C. Net income is capitalised at the interest on capital, 6%, giving YP = 100/6 = 16.67. (Key point: YP rate)

4. What is the capitalised value?
   A. Rs 20,00,000
   B. Rs 30,00,000
   C. Rs 15,00,000
   D. Rs 40,00,000
   Answer: A. 1,20,000 x 16.67 = about Rs 20,00,000. (Key point: Capitalised value)

## Related in Construction Management

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