L-IV

Words and Expressions in Alphabetical List

[Link]. Word Explanation

1 Actual age The number of years that have elapsed since
installation of a new machine; it is also known as
historical or chronological age.
2 After tax income It is the income that remains after meeting the liability
of income tax from taxable income
3 Agents in production Land, Labour, Capital and entrepreneurship which
create wealth, goods services and income.
4 Amortization A process by which a capital invested is recovered by
systematic schedule of repayment (or) the action or
process of gradually writing off the initial cost of an
asset (or) Amortization is the process of spreading out
a loan into a series of fixed payments over time. You'll
be paying off the loan's interest and principal in
different amounts each month, although your total
payment remains equal each period. This most
commonly happens with monthly loan payments, but
amortization is an accounting term that can apply to
other types of balances, such as allocating certain costs
over the lifetime of an intangible asset.
Amortized loans are designed to completely pay off
the loan balance over a set amount of time. Your last
loan payment will pay off the final amount remaining
on your debt. For example, after exactly 30 years (or
360 monthly payments) you’ll pay off a 30-year
mortgage.
5 Amortization rate The ratio of periodic payment to the total capital
6 Annuity An annual income or a constant income that can be
depended upon as expected within specific time frame.
Annuities can be structured generally as either fixed or
variable. Fixed annuities provide regular periodic
payments to the annuitant. Variable annuities allow the
owner to receive greater future cash flows if
investments of the annuity fund do well and smaller
payments if its investments do poorly.

An example of this type of annuity is the immediate

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 payment annuity in which payments begin
immediately after the payment of a lump sum.
Deferred income annuities are the opposite of an
immediate annuity because they don't begin paying out
after the initial investment.
7 Appraisal It is a process of ascertaining/estimating value. It is an
opinion of the nature, quality, monetary value or utility
of specified interest in or with regard to aspects of
identified asset.
8 Appreciation An increment in value
9 Approaches to value A process to arrive at a sound valuation for assets e.g.,
cost approach, income approach, market approach.
10 Arm’s length A transaction by parties unknown to each other who
transaction are under no duress [forcible restraint (i.e. something
under control)] to undertake the transaction.
11 Balance sheet Statement showing total assets, total liabilities and
resulting net worth of an entity.
12 Before tax cash flow Income remaining from operating income after the
payment of debt-service but before payment of income
tax.
13 Benefit /cost ratio The ratio indicating present value of future benefits of
an investment to the expenditure incurred for creating
the asset in its existing state.
14 Book Cost: The cost of acquisition of an asset indicated in the
company’s ledger inclusive of all taxes, erection,
installation, foundation, pre-operative expenses and
other related costs. Sometimes referred to as “gross
book” i.e. original cost before deduction for
depreciation.
15 Book Depreciation: Depreciation provided in the books of account as per
policy of the company/ it is the amount written off on
capital accounts regularly during ownership of an
asset.
16 Book Value The difference of book cost and book depreciation is
book value at a given point of time. Some times it is
referred to as “ net book”
17 Break-even point: The level of operation of an enterprise at which gross
income equals the sum of expenses incurred to keep
the concern going.

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18 Bundle of rights in an The concept comparing ownership to a bundle of sticks
asset with each stick indicating a distinct right of the asset
owner. E.g. right to use, to sell, to give it on leave and
license, to lease out, to mortgage, or to choose to
exercise none of theses rights or to execute all the
rights. The loss of any one of theses rights could alter
the value.
19 Business cycle It is trend of economic activity which passes through
changing phases like prosperity, recession, depression,
recovery.
20 Business Valuation It is process of carrying out valuation to ascertain the
present as well as future financial rewards of entire or
partial ownership rights in the business. This is
generally carried out by valuers that specialize in
business valuations or intangibles.
21 Buyers market This is indicative of a condition of the market where
the supply of goods and service is more than the
demand and results in low prices by which buyers are
benefitted.
22 Capital Money available for investment or accumulated wealth
having potential of generating income.
23 Capital assets Assets of permanent nature capable of generating
income e.g. land, building, machinery, equipment,
cash, receivables, inventories, current assets.
24 Capital expenditure Investment of cash to acquire fixed assets like land,
building, machinery, additions to building and
machinery.
25 Capital expense Capital charge or the necessary for interest on and
amortization or an investment.
26 Capital gain The difference between net sale proceeds and book
value of a fixed assets
27 Capitalization: Method used to convert future benefits to present value
by discounting such future benefit at an appropriate
rate of return
28 Capitalization in Capitalizing the net future benefits assumed to last
perpetuity permanently or indefinitely
29 Capitalization rate A designated rate of return which converts net future

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 benefits to capital value.
30 Capital market The interaction of sellers and purchasers trading
through long or intermediate term financial
instruments.
31 Cash flow analysis An analysis of anticipated movement of cash in or out
of a business.
32 Cost approach It is one of the three appraisal approaches.
In this approach, the replacement cost is at first
ascertained and therefrom total depreciation during the
age of the asset is deducted by giving due regard to
physical deterioration; functional; technological and
economic obsolescence.
The difference of the replacement cost and cumulative
depreciation gives a value dependent upon the type of
economic obsolescence applied.
33 Cost index A multiplier applied to historical cost which converts
historical cost to estimated reproduction cost. In other
words, by cost index one estimates trended cost.
Trended cost reproduces the item and therefore the
result is known as reproduction with all its bad and
good qualities (used when replacement cannot be
determined).
34 Current assets Assets not intended for use on a continuing basis in the
activities of an enterprise. Examples: Stocks, short
term investments, and cash in bank and in hand
35 Current cost accounting The system of accounting which shows current market
value by showing net current replacement cost of
assets in financial statements. This is only a book
market value but may not properly reflect on market
value in exchange (to another buyer). In other words, it
is a value in existing use, or value to the business and
hence deprival value.
36 Current yield It is known as return on investment of capital.
37 Depreciable assets: Depreciable asset means a non current asset having a
limited “useful life”.
Curable depreciation is that deterioration or
obsolescence which is economically viable to cure in
view of the consideration that the enhancement in
utility, and hence the value of the total property equals

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 or exceeds the cost to cure.
A milling machine may have its capacity limited by
out-of-date computer numeric controls, or CNC. By
upgrading the CNC, the machine’s capacity is
increased.
A new forced air furnace to replace an old gravity type
(outmoded item), adding a new bathroom off the
master bedroom (curing a deficiency), or replacing a
100-gallon hot water tank with a 40-gallon tank
(superadequacy).
Incurable depreciation is that deterioration or
obsolescence which cannot be physically resorted or
which is not economically viable to cure as the
estimated cost to cure exceeds the anticipated
enhancement in utility and the eventual value of the
total property.
A loss in value arises when the cost of curing the
problem is greater than the anticipated increase in
utility and thus, value. It would not, therefore, be a
sound economical undertaking. Losses could occur as
a result of a deficiency or a superadequacy.
In some older styles of houses, the floor plan is
deficient in that there is no central hallway; bedrooms
are accessed directly off the living room (this would be
considered a deficiency by today's standards of
housing floor plans).
A superadequacy might be a 12-inch concrete
foundation under a house where a 9-inch foundation
would be adequate and standard.
Incurable physical depreciation refers to items
generally of deferred maintenance that cannot be
practically or economically corrected at present.
Incurable physical deterioration must be based on the
reproduction or replacement cost of the entire structure
after the cost to cure curable components has been
deducted.

38 Depreciated DRC means the gross current replacement (or

Replacement Cost reproduction) cost of plant and machinery less
(DRC) allowances for depreciation and obsolescence that may
be estimated where the market does not allow these
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 factors to be ascertained.
DRC must always take into consideration the potential
profitability, or service potential in the case of public
assets or assets devoid (entirely lacking or free from)
of free cash flows [Free cash flow is a metric often
used by financial analysts. It is calculated by
using two amounts reported on a company's
statement of cash flows:
• Total/Net amount of cash flows from
operating activities, minus
• Capital expenditures (which is a separate
item reported under cash flows from investing
activities);
Example of Free Cash Flow
Assume that during the most recent year a
corporation had cash flows from operating
activities of $300,000 and had capital
expenditures of $225,000. The corporation's free
cash flow was $75,000.], related to the value of the
enterprise as a whole. The elements of market and non-
market considerations are thus clubbed together. The
DRC method is concerned with the valuation of
individual assets rather than the business per se. in this
view it is essentially different from Going concern
value method and is used in asset valuations for
financial statements when required. Thus, it means
value to the business in its existing use.

Specialized properties, which are not generally

marketed in the open except as part of the business in
occupation cannot be valued by market approach. The
DRC method is applied in such case of valuation.
39 Depreciable amount Depreciable amount means the historical cost of a
“depreciable asset”, or an amount substituted for
historical cost in the accounting records, less in either
case the net amount expected to be recovered on
disposal of the asset.
40 Depreciation charge It means a periodic charge against revenue, made for
the purpose of allocating the “depreciable amount” of a
depreciable asset” over the useful life.
41 Accumulated Accumulated depreciation means the aggregate at a
depreciation given point of time of the “depreciation charges” in
respect of a particular “depreciable asset” or class of
“depreciable assets”

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42 Discounted cash flow It is an analytical device or a programme in which the
analysis quantity, variability, timing, and duration of periodic
incomes as well as the quantity and timing of
reversions are specified and discounted to a present
value at a specified rate.
43 Discounting The process which converts periodic income and
reversions into present value, on the assumption that
benefits available in the future are worth less than
benefits received now.
44 Discount rate A rate of return to convert future receipts into P.V.
45 Distress sale Seller selling the asset under compulsion for whatever
reason
46 Due-on-sale clause It is a clause generally found on mortgage contracts
indicating as if there is an outstanding loan balance on
sale, it precludes loan assumption by a new buyer
47 Earning power Capacity to raise income
48 Economic base The quality of economic activity of a particular
area/zone capable of attracting income from within its
borders
49 Economic feasibility Ability to produce sufficient income from investment
to pay all expenses, charges and to provide a
reasonable return on capital to enable the recapture of
the sum invested.
50 Economic life The period of steady return after which it is
uneconomical to use a particular asset
51 Eminent domain The superior right that that resides with the
government enabling it to take over private property
for public purpose on the payment of compensation as
per legal provisions.

52 Encumbrance Mortgage, tax, dues, charges restriction, easement,

reservation or similar covenant (an agreement)
whether arising out of legal contractual obligations or
judicial pronouncements but not lien as such.
53 Effective age Age indicative of the conditions of utility of an asset.
This is usually limited to physical life or can be a
reference to age within an economic life.
54 Fair value Fair value is the amount for which an asset could be

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 transferred or liability settled, between willing parties
with perfect knowledge of the market and operating in
an arm’s length transaction.
55 Fair market value It is the highest price estimated in terms of money that
the asset will fetch if offered for sale in the open
market with reasonable time allowed to find a buyer,
the buyers and sellers not being under any compulsion
to enter into the transaction but fully aware of the
adaptability and uses of the asset transacted.
To put the matter more elaborately, the fair market
value is the most probable price which a property
ought to bring in a competitive and open market
under all conditions requisite to a fair sale, the buyer
and seller each acting prudently and with full
knowledge, and assuming the price is not affected
by undue stimulus. This definition assumes the
consummation of a sale as on a specified date and the
passing of title from seller to buyer under the following
conditions:

Buyer and seller are typically motivated

Both parties are well informed or well advised,
and acting in what they consider their best
interests

A reasonable time is allowed for exposure in
the open market

Payment is made in terms of cash or in terms of
agreed financial arrangement;

The price represents the normal consideration
for the property sold unaffected by special or
creative financing or sales concessions granted
by anyone associated with the sale;
and

Delivery of possession which may allow the
property valued to be removed from the site of
the sale for relocation by the buyer
56 Fair market value in The most probable price which a property ought to
continued use bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller
each acting prudently and with full knowledge, and
assuming the price is not affected by undue stimulus.

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 This definition assumes the consummation of a sale as
on a specified date and the passing of title from seller
to buyer under following conditions:

Buyer and seller are typically motivated

Both parties are well informed or well advised,
and acting in what they consider their best
interests

A reasonable time is allowed for exposure in
the open market

Payment is made in terms of cash or in terms of
agreed financial arrangement;

The price represents the normal consideration
for the property sold unaffected by special or
creative financing or sales concessions granted
by anyone associated with the sale;
and

The plant and machinery and/or real estate is
valued as a whole in its working place
including its costs of installation and assuming
that the earnings support the value reported.
In other words, fair market value in continued use
means value to the business. The value of the asset/s is
its contribution to the operation.
57 Fair market value, The most probable price which a property ought to
installed: bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller
each acting prudently and with full knowledge, and
assuming the price is not affected by undue stimulus.
This definition assumes the consummation of a sale as
on a specified date and the passing of title from seller
to buyer under following conditions:

Buyer and seller are typically motivated

Both parties are well informed or well advised,
and acting in what they consider their best
interests

A reasonable time is allowed for exposure in
the open market

Payment is made in terms of cash or in terms of

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 agreed financial arrangement;

The price represents the normal consideration
for the property sold unaffected by special or
creative financing or sales concessions granted
by anyone associated with the sale;
and

The installation costs of the P & M are included
in the valuation
Note: This differs from “in use” as it values each
asset as it might exchange in the market place plus
a depreciated installation. It does not consider
contribution to the operation.
58 Fee simple estate Free hold property/estate
59 Fixed estate Assets of permanent nature like land, building,
machinery, equipment, furniture which are not
generally converted in to cash or used up in production
process once they are pressed into service. Some refers
to as capital assets.
60 Forced price The price realised in forced sale or purchase when
sufficient time was not available to find a purchaser on
reasonable terms. It assumes a result of a compelled
seller

61 Forces sale: A sale under compulsion of circumstances or exigency

of necessity including sale at public auction under
order of the court of law.
62 Forecasting Predicting a future market condition on the basis of
past or present trends.
63 Force majeure An unavoidable cause leading to the failure to fulfil
obligation under the agreement within stipulated time.
64 Fore closure Mortgagee exercising his right by due process of law
and forcing sale of the mortgaged asset to recover loan
which mortgagor has defaulted.
65 Fully amortizing A mortgage loan with repayment schedule in periodic
mortgage loan or monthly instalments of equal nature which provides
for return on investment/interest as well as return of
the investment, or recovery of the principal over the
period of the loan.

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66 Functional obsolescence A decline in the value of an asset owning to its
functional constraints arising out of changes in its
design, standard or material. Functional obsolescence
may be curable or incurable according as depreciation
due to change in such design or material used in
original construction of an asset is economically
curable or not

67 Functional utility It is the capacity of an asset to be useful and to execute

activity for which it is built as per prevailing market
tastes and standards.
68 Going concern value This is a special value created due to operation of an
asset e.g. a factory in productive operation. The going
concern value will cease to exist the moment the
operation of business is discontinued.
Going concern value represent the net value of all
tangible and intangible assets of an enterprise after
necessary discount in consideration of all liabilities.
The value estimate indicates the value of the business
in its existing state where individual value amounts
may not normally be apportioned to any particular
property asset. Thus, individual component assets have
no going concern value and asset valuations for
financial reporting does not take account of it.
69 Good will It is an intangible asset arising out of reputation,
credibility and earning potential of a business or
manufacturing concern.
70 Graduated payment A system of mortgage in which repayment increases
mortgage with income, the periodic payment begins with low
and increases gradually.
71 Gross current Gross current replacement cost means the cost of
replacement cost (in replacing an existing asset with an identical or
relation to financial substantially similar new asset having similar
statement) production or service capacity, including costs of
transport, installation, commissioning, consultants
fees, non-recoverable taxes and duties and finance cost
up to the stage commercial production. The cost of
design is to be looked at from the point of view of
plant reconstruction rather than cost of the original
assets.
72 Guaranteed mortgage It is a mortgage in which, in the event of default by

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 the borrower, payment is guaranteed by a third party.
73 Insurable value The value of assets at which they are considered to be
insure. The value may be subject to provision of policy
74 Insurance It is contract by which an insurer indemnifies the
insured for damages or losses that may occur due to
perils or events specified in the contract (insurance
policy)

75 Insurance policy Insurance policy means contract of indemnity by

which the insurer undertakes, in the event of loss, to
replace insured article by payment or otherwise in the
same position as it was before the loss, neither better
nor worse, but subject to any limits or restrictions of
the policy terms and conditions. Some policies may be
based upon new replacement cost/s
76 Indemnity value for Indemnity value for insurance purpose means value
insurance purpose decided on the basis of depreciated replacement cost to
take account of prior usage unless the second hand
equivalent plant is available in the market.
77 Interest Return on capital and is not return of capital
78 Internal rate of return It measures performance of an investment. It is the rate
(I.R.R)/ Investment of return on capital that is generated or capable of
yield being generated within an investment over a period of
ownership. This is similar to yield rate.
79 Intrinsic value The inherent worth of an asset
80 Judicial sale The sale due to court action to satisfy the debt in
mortgage foreclosure. The court supervises the sale
and distribution of proceeds to the creditor
81 “K” factor Stabilization factor used to convert a stream of
unstable income at a constant ratio in to its stable level.
82 Laissez faire This is French expression including government
should not interfere with free enterprises.
83 Lease A written document between owner of the property
and lessee (person who takes the property on lease) by
which property is transferred for a specific period of
time at certain rent and /or premium under agreed
terms and conditions.
Lessee & Lessor

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84 Lessee’s interest The right to use and/or occupy the property for certain
85 Letter of credit A letter issued by a financial institution certifying that
the party named is entitled to draw on the institution
and that institution will honour party’s credit to a
certain amount
86 lien A claim or charge on an asset in which the property is
the security for payment of debt.
87 Life interest/Life estate An interest in a property like occupancy or control
limited to the lifetime of a person other than owner and
is terminated on the death of the designated person. It
is also known as life tenancy.
88 Marginal cost: In economic terms, it indicates price that barely, if at
all, covers cost of production.
In real estate, terms, it indicates income derived from
the property that just barely, if at all, covers operating
cost.
89 Marginal revenue The required gross revenue by selling one additional
unit to break even.
90 Market value Market value means the estimated amount for which
an asset ought to exchange on the date of valuation
between a willing buyer and a willing seller in arm’s
length transaction after proper marketing wherein the
parties had each acted with full knowledge, prudently
and without compulsion.
91 Market Value for the The market value of an asset based on continuation of
existing use its existing use, assuming that asset could be sold in
the open market for its existing use, and other wise, in
keeping with the market value definition regardless of
whether or not, the existing use represents the highest
and best use of the asset.
92 Non-market value Non market value is worked out in the filed of
valuation of P&M for ascertaining liquidation values,
salvage and scrap values, insurance values, and cost.
The valuer shall ensure that such value is duly
ascertained and reported through it may not reasonably
be construed to represent the market value.

93 Market approach It is one of the three approaches to value. Value of the

property in question is derived by the comparison of
sales of similar property sold recently in the locality.
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 The relative merits and demerits of sale instances are
compared with the property in question. Some times it
is referred to as “comparative sale approach” or
comparisons approach”.
94 Nuisance value Price paid to relieve an objectionable condition.
95 Perpetuity Everlasting or y-o-y

96 Recession Decline in economic activity

97 Recoverable amount Recoverable amount means the capitalized value
attributable to the remaining use of the asset in the
business of the company plus its net realizable value.
98 Replacement cost The cost of acquiring an asset at current prices having
utility equivalent to asset under consideration but
having materials, standards, design according to
prevalent market.
99 Reproduction cost The cost of acquiring an identical asset/replica using
same material, design, standards, quality, workmanship
of the asset under consideration. It carries with it the
good and bad attributes of the original.
100 Return of capital The recovery of the capital invested through income
and/or reversion
101 Return on capital The profit earned by the capital invested; the rate of
interest on capital.
102 Reinstatement insurance It means replacement cost of similar asset (i.e. of same
value type & kind) in a condition equal to but not better or
more exclusive than its condition when new.
103 Scrap value
104 Salvage value
105 Straight line Method of providing depreciation by which assets are
depreciation written off in equal annual amounts

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