Posted in Finance, Accounting and Economics Terms, Total Reads: 391
Definition: Appraisal Costs
It is the cost occurred in paying the professionals or others in estimating the performance or valuation of a particular thing in business. The appraisal can be of anything as a project or just an employee.
Appraisal is a process of finding out the worth of a particular thing, it can be an object such as car, furniture or it can be an activity such as a project or it can be a person or a company, basically almost anything can be appraised, you just need the right skill set to pull that off. In accounting appraisal refers to valuation of a product or any other thing. And in order to do appraisal or valuation companies often hire professionals to do the appraisal for them and in return the company pays them. And the expanses which may occur during that whole process such as the fees paid, the man power used etc. are defined as the appraisal cost.
You may ask why the company is spending money just to calculate the worth of a thing, why can’t the company just check how much did they pay for the thing and so some basic depreciation calculation and value it at that only. Well, that is a valid point but doing appraisal is not that easy there are too many factors which needs to be considered for the valuation, factors such as macroeconomic and microeconomic factors. We will try to understand using an example:
Let’s day you bought a house for 100000 units and after 4 years you want to sell it. You don’t know what the selling price should be? , so you hire a professional. The professional will consider all the major factors which may influence the price of your house such as the real estate market, the location, the economy etc. and will give you a number as how much your house is worth. In return you may have to pay a nominal price to the guy as the appraisal cost.