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IBBI Valuation Case Study Analysis

A factory building suffered damage. It had a sum insured of Rs. 50,00,000. The owner claimed Rs. 10,00,000. The building was 20 years old on a plot with 2,000 square feet. The replacement cost is Rs. 7,000 per square meter. The replacement value is Rs. 13,01,090. However, with 50% depreciation for a 20 year old building, the depreciated value is Rs. 6,50,545. Though the owner claimed Rs. 10,00,000, the insurance company will only approve the depreciated value of Rs. 6,50,545, as that is the actual loss amount.

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2K views2 pages

IBBI Valuation Case Study Analysis

A factory building suffered damage. It had a sum insured of Rs. 50,00,000. The owner claimed Rs. 10,00,000. The building was 20 years old on a plot with 2,000 square feet. The replacement cost is Rs. 7,000 per square meter. The replacement value is Rs. 13,01,090. However, with 50% depreciation for a 20 year old building, the depreciated value is Rs. 6,50,545. Though the owner claimed Rs. 10,00,000, the insurance company will only approve the depreciated value of Rs. 6,50,545, as that is the actual loss amount.

Uploaded by

Rubina Hannure
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Opinion
  • Case Study Details
  • Answers

CASE STUDY (IBBI EXAM)

- B. Kanaga sabapathy
[Link]

Part - 6

Case study :

One factory got damaged. The sum insured is Rs. 50,00,000/-. Claim made by the owner
- Rs. 10,00,000/-. The property is 20 years old. Present replacement rate of a similar new
building is Rs. 7,000/- per sq.m. Builtup area - 2,000 [Link].

1) What is replacement value of the building?


2) What would be the claim approved by insurance company?.

Opinion :

Data :

Sum insured = Rs. 50,00,000/-


Claim made by the owner = Rs. 10,00,000/-
Age of the building = 20 years
Built up area = 2,000 [Link].
Replacement cost = Rs. 7,000/sq.m.

Solution :

Builtup area = 2,000 [Link]. or 185.87 sq.m.


Replacement rate = Rs. 7,000/sq.m.
Replacement value = 185.87 x 7,000
= Rs. 13,01,090/- (1)

Age = 20 years
Life assumed = 40 years (since it is a factory)
Salvage value = Nil (assumed)
20
Depreciation percentage = x 100 = 50%
40
Depreciation value = 0.5 x 13,01,090
= Rs. 6,50,545/-
Depreciated value = 13,01,090 - 6,50,545
= Rs. 6,50,545/- (2)

Answers : 1) The replacement value is Rs. 13,01,090/-.

2) • The depreciated value (including the foundation is Rs. 6,50,545/-.


The owner has insured the building for Rs. 50,00,000/-. The sum
insured in adequate. These is no under insurance.

• Though the owner has claimed Rs. 10,00,000/-, the actual


depreciated value is only Rs. 6,50,545/-. Therefore the sum payable
is Rs. 6,50,545/- (minus the policy excess).

• (Note : If policy is made only for the super structure only, value of the
superstructure (assuming 15% for foundation) = 0.85 x 6,50,545 =
Rs. 5,52,963/-. Sum payable is Rs. 5,52,963/- (less policy excess)).

* * *

CASE STUDY (IBBI EXAM) - B. Kanaga sabapathy www.bkanagasabapathy.com Part - 6 Case study : One factory got damaged. The sum
Depreciated value = 13,01,090 - 6,50,545 = Rs. 6,50,545/- (2) Answers : 1) The replacement value is Rs. 13,01,090/-. 2) • T

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