Plant and Machinery Valuation in Kenya: When You Need It and How It Works

Plant and machinery valuation is a specialist discipline within the broader field of asset valuation. In Kenya, it is most commonly required for mortgage security (where a bank is lending against industrial assets), insurance purposes (to determine the reinstatement or indemnity value of manufacturing equipment), financial reporting (IFRS-compliant revaluation of fixed assets), and company acquisition or disposal.

The three principal bases of value for plant and machinery are: market value in situ (the value of the equipment as installed in a going concern, including the benefit of installation and commissioning); market value for removal (the value of the equipment assuming it will be disconnected, removed, and sold to a new user); and forced sale value (the value achievable in a distressed sale within a constrained timeframe).

A valuer conducting a plant and machinery inspection will record the make, model, serial number, year of manufacture, rated capacity, apparent condition, and maintenance history of each item. For production lines, the valuer also considers the integration of equipment — a bottling line, for example, may be worth significantly more as a complete system than as individual components.

One of the most common errors in plant and machinery valuation is failing to distinguish between the value of the equipment and the value of the building housing it. A specialised factory building — with reinforced floors, overhead crane gantries, high-voltage power supply, and chemical drainage — derives much of its value from its fitness for the specific industrial use. The building and the plant must be valued consistently, with clear statements about what is included in each figure.

For insurance purposes, the reinstatement value of plant and machinery includes not just the replacement cost of the equipment but also freight, customs duty, installation, commissioning, and a reasonable allowance for inflation over the reinstatement period. Under-insurance of plant and machinery is at least as common and as costly as under-insurance of buildings, and the application of average at claim stage can be devastating for a manufacturer.