The Efficacy of the Use of Depreciated/Replacement Cost Method as an Alternative to Profit/Account Method in Valuation of Hotels in Bauchi

Abstract

Various valuation models were developed to value different interests in land and landed property. Although, the basis of valuation might be the same, the methodology may sometimes differ to capture certain peculiarities and attributes in respect of a particular property. In an ideal situation, the profit method of valuation should be adopted in the valuation of hotel properties. Where this is not attainable, the depreciated replacement cost method is adopted. The aim of the study is to examine the efficiency of the use of depreciated replacement cost method as an alternative to profit or account method in valuation of hotels, Bauchi with a view to suggest and recommend the best method of valuing hotel properties. This research is located in a positivist epistemology, where no objective truth is accepted and truth or meaning generation comes through social engagement with the world. The instruments used for data collection are interviews, house inspection, and document review. The study adopts the depreciated replacement cost method and profit or account method of valuation in analyzing the data obtained. Complete theoretical analysis was equally adopted in analyzing the data. The findings reveal that the cost approach may provide a reliable estimate of value in the case of new hotel properties, but as buildings and other improvements grow older and begin to deteriorate, the resultant loss in value becomes increasingly difficult to quantify accurately. The revealed results confirmed the importance of profit or account method of valuation as the most effective and efficient in the evident that the hotel property is not moving at a lost. The study recommends amongst others that before cost approach could be used in valuation of hotel properties, income-related consideration must be difficult to ascertain.

Keywords: Depreciated/Replacement Cost Method, Hotel Valuation, Improvement, Land and Profit/Account Method