Plant and Machinery explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Machinery is the most technically complex asset category in a CIRP valuation — and the one where the gap between book value, continued-use value and what an auction will actually fetch is widest.
The five-step framework
- Verify asset records and physical existence — reconcile the Fixed Asset Register with inspection findings. Assets in the FAR but not physically traceable should be separately investigated; absent satisfactory evidence of existence, they should be valued at nil.
- Assess condition and remaining useful life — condition, maintenance history, utilisation, operational status, with particular attention to machinery idle during the CIRP or for extended periods before insolvency.
- Select the approach — see below.
- Assess obsolescence — functional, technological and economic, in addition to physical depreciation.
- Consider dismantling and reinstallation costs — in liquidation the buyer bears them, and they reduce the net realisable value to the estate.
Choosing the approach
| Approach | When |
|---|---|
| Market / sales comparison | Standard machinery with an active secondary market — vehicles, standard machine tools, pumps. Reference second-hand prices from auction houses, OEM buy-back rates or online platforms. The most defensible method |
| Depreciated Replacement Cost | Specialised, purpose-built machinery with no active secondary market. Current new cost from OEM quotes or industry price indices, depreciated for age, condition and obsolescence |
| OLV vs. FLV | For liquidation: Orderly Liquidation Value assumes a reasonable marketing period; Forced Liquidation Value assumes an immediate auction. These brackets should be explicitly established |
The common weakness is assuming installed machinery can be readily sold at values approximating continued-use value without adequately considering:
buyer availability, relocation costs, commissioning requirements and practical realisation constraints.
The underlying question is whether machinery derives value primarily from its continued use within an operating business or whether it has standalone market value independent of the business — and for an integrated production line the answer is usually the former. Piecemeal sale of such a line may result in significant value erosion, which is the whole reason the going-concern and liquidation conclusions diverge on the same asset schedule.
How liquidation treats each category
| Category | Typical liquidation consideration |
|---|---|
| General-purpose machinery | Active secondary market may support relatively stronger recoveries |
| Process-specific machinery | Limited buyer pool and significant realisation uncertainty |
| Technologically obsolete machinery | Value driven primarily by scrap or salvage recovery |
| Integrated production lines | Piecemeal sale may cause significant value erosion |
| Imported specialised equipment | Limited domestic demand and relocation challenges |
| Heavy installed machinery | Dismantling and transportation costs may materially reduce net recovery |
The standards behind it
- IBBI standardised valuation format for plant and machinery — mandates physical inspection, year of manufacture, current condition rating and basis of valuation.
- ICAI RVO technical guide on valuation of plant and machinery — India-specific guidance on condition assessment and depreciation.
- IBBI discussion paper on liquidation discounts — indicative sector-specific haircut ranges from historical auction data in CIRP cases.
- OEM specifications and industry cost benchmarks — replacement cost, useful life and technical obsolescence.
What a good write-up looks like
The illustrative model splits the asset base three ways: operational assets valued on market comparison against auction and OEM buy-back data; specialised process equipment valued on DRC with separate age-based and technology-based percentages; and non-operational, idle or dismantled items assigned scrap value at confirmed local rates or nil where beyond economic repair. Asset-specific forced-sale discounts are then applied, justified by buyer pool, estimated dismantling and transportation cost, and the urgency of sale in the CIRP timeline.
Common mistakes
- Carrying FAR assets that could not be located at book value.
- Applying one blended discount to a mixed plant and machinery schedule.
- Assessing physical depreciation but not technological obsolescence.
- Failing to state whether the liquidation figure is OLV or FLV.