Purposes in Quantity Surveying & Costing

I. Introduction

In the field of quantity surveying and costing, understanding the purposes behind various concepts and calculations is of utmost importance. This knowledge allows professionals to accurately estimate costs, make informed decisions, and ensure the successful completion of construction projects.

II. Depreciation

Depreciation is a key concept in quantity surveying and costing. It refers to the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors. The purpose of calculating depreciation is to account for the reduction in value when estimating the cost of a project.

There are two common methods of calculating depreciation:

1. Straight-line method: This method evenly distributes the depreciation expense over the useful life of the asset.
2. Reducing balance method: This method applies a higher depreciation expense in the earlier years of the asset's life.

A step-by-step walkthrough of calculating depreciation is as follows:

1. Determine the initial cost of the asset.
2. Determine the estimated useful life of the asset.
3. Choose a depreciation method.
4. Calculate the annual depreciation expense.

Real-world examples of depreciation in construction projects include the depreciation of machinery, vehicles, and buildings.

Advantages of using depreciation in cost estimation include:

• Accurate reflection of asset value over time
• Consideration of asset lifespan

Disadvantages of using depreciation in cost estimation include:

• Subjectivity in determining useful life
• Potential overestimation or underestimation of asset value.

III. Sinking Fund

A sinking fund is a fund set aside to accumulate money over time to replace an asset or cover future expenses. The purpose of calculating a sinking fund is to ensure that there are sufficient funds available when needed.

The calculation of a sinking fund involves the following steps:

1. Determine the future value of the asset or expense.
2. Determine the time period until the funds are needed.
3. Choose an appropriate interest rate.
4. Calculate the regular contributions required to reach the future value.

Real-world applications of sinking funds in construction projects include setting aside funds for equipment replacement or major repairs.

Advantages of using sinking funds in cost estimation include:

• Ensuring funds are available when needed
• Spreading out the financial burden over time

Disadvantages of using sinking funds in cost estimation include:

• Opportunity cost of tying up funds
• Uncertainty in future expenses.

IV. Scrap Value

Scrap value refers to the residual value of an asset at the end of its useful life. The purpose of calculating scrap value is to consider the potential revenue from selling or salvaging the asset.

Methods for estimating scrap value include:

1. Market value estimation: This method involves researching the current market value of similar assets.
2. Salvage estimation: This method estimates the value of the asset's components or materials if it were to be salvaged.

A step-by-step walkthrough of calculating scrap value is as follows:

1. Determine the estimated useful life of the asset.
2. Research market or salvage values.
3. Calculate the annual depreciation expense.
4. Subtract the accumulated depreciation from the initial cost to determine the scrap value.

Real-world examples of scrap value in construction projects include the potential revenue from selling old equipment or recycling materials.

Advantages of considering scrap value in cost estimation include:

• Potential revenue from asset disposal
• More accurate estimation of overall project costs

Disadvantages of considering scrap value in cost estimation include:

• Uncertainty in market or salvage values
• Potential overestimation or underestimation of scrap value.

V. Year's Purchase

Year's purchase is a factor used to convert an annual income or expense into a capital value. The purpose of calculating year's purchase is to determine the present value of future income or expenses.

The calculation of year's purchase involves the following steps:

1. Determine the annual income or expense.
2. Choose an appropriate interest rate.
3. Calculate the year's purchase factor using the interest rate.
4. Multiply the annual income or expense by the year's purchase factor to determine the capital value.

Real-world applications of year's purchase in quantity surveying include valuing rental income or estimating the cost of future expenses.

Advantages of using year's purchase in cost estimation include:

• Present value consideration
• More accurate estimation of long-term costs or income

Disadvantages of using year's purchase in cost estimation include:

• Sensitivity to interest rate changes
• Potential overestimation or underestimation of capital value.

VI. Gross and Net Income

Gross income refers to the total income generated before deducting expenses, while net income refers to the income remaining after deducting expenses. The purpose of calculating gross and net income is to evaluate the profitability of a project or investment.

The calculation of gross and net income involves the following steps:

1. Determine the total income generated.
2. Deduct all applicable expenses.
3. Calculate the gross income by subtracting the total expenses from the total income.
4. Calculate the net income by further deducting taxes or other deductions.

Real-world examples of gross and net income in quantity surveying include evaluating the financial viability of construction projects or investments.

Advantages of considering gross and net income in cost estimation include:

• Evaluation of project profitability
• Identification of potential financial risks

Disadvantages of considering gross and net income in cost estimation include:

• Sensitivity to income and expense fluctuations
• Potential overestimation or underestimation of income or expenses.

VII. Dual Rate Interest

Dual rate interest refers to the use of different interest rates for different time periods. The purpose of calculating dual rate interest is to account for changing interest rates over time.

The calculation of dual rate interest involves the following steps:

1. Determine the initial amount or present value.
2. Determine the interest rate for each time period.
3. Calculate the interest for each time period using the respective interest rate.
4. Sum up the interest amounts to determine the total interest.

Real-world applications of dual rate interest in cost estimation include considering variable interest rates for loans or investments.

Advantages of using dual rate interest in cost estimation include:

• Consideration of changing interest rates
• More accurate estimation of interest expenses or income

Disadvantages of using dual rate interest in cost estimation include:

• Complexity in calculations
• Potential overestimation or underestimation of interest expenses or income.

VIII. Conclusion

In conclusion, understanding the purposes behind various concepts and calculations in quantity surveying and costing is crucial for accurate cost estimation and decision-making in construction projects. Key concepts and principles associated with purposes include depreciation, sinking fund, scrap value, year's purchase, gross and net income, and dual rate interest. By considering the advantages and disadvantages of these purposes, professionals can make informed choices and ensure the success of their projects.

Summary

This topic explores the purposes behind various concepts and calculations in quantity surveying and costing. It covers depreciation, sinking fund, scrap value, year's purchase, gross and net income, and dual rate interest. Understanding these purposes is essential for accurate cost estimation and decision-making in construction projects.

Analogy

Understanding the purposes in quantity surveying and costing is like understanding the different ingredients in a recipe. Each purpose serves a specific function, just like each ingredient contributes to the overall flavor and texture of a dish. By understanding the purposes, professionals can create accurate cost estimates and make informed decisions, just like a chef can create a delicious meal by using the right ingredients in the right proportions.