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Valuing Used Machinery: Depreciation and Market Prices

5 min readFLAT LAW FIRM
Industrial machinery inside a factory (illustration)

Scenario: a foreign investor wants to contribute a CNC machine used for six years in China, shipping it to Vietnam for installation in the factory. Both sides agree to “just take the net book value” as the contribution value to save time. The accountant asks: is that correct, and how should used machinery be valued on solid legal footing?

The legal framework: used machinery contributed as capital must be valued in Vietnamese dong

Article 34(1) of Enterprise Law No. 59/2020/QH14 (effective 1 January 2021) confirms machinery and equipment as lawful contributed assets if they can be valued in Vietnamese dong, provided only lawful owners may contribute them. Article 36(1)–(2) requires that contributed assets other than Vietnamese dong, freely convertible foreign currency or gold be valued in Vietnamese dong by the members, founding shareholders or a valuation organisation; at formation, members value assets by consensus or engage a valuation organisation — in which case the value must be approved by over 50% of founding members or shareholders.

The sharpest deterrent sits at the end of Article 36: where a contributed asset is valued above its actual value at the time of contribution, the members or founding shareholders are jointly liable to make up the difference and jointly responsible for damage caused by intentional overvaluation. Valuing used machinery is therefore not a matter of casual agreement.

Three approaches to valuing used machinery

Valuation practice combines three approaches depending on the asset. The market approach: reference transaction prices of the same model, same production year and similar condition on the market — preferred where reference data exists. The cost approach: determine the reproduction or replacement cost at the valuation date, then deduct total depreciation. Two common working formulas: Remaining value = Reproduction (or replacement) cost − Total depreciation; and Actual value = Market-restated original cost × Remaining-value ratio at the valuation date. The income approach: discount the future cash flows the machine generates — typically for production lines or income-producing equipment.

Vietnamese Valuation Standards Nos. 08, 09 and 10 (issued with Circular 126/2015/TT-BTC) draw a clear line: reproduction cost is the current cost of creating an asset identical to the subject, including its obsolete features; replacement cost is the current cost of creating an asset of similar utility using current technology and materials, excluding obsolete components. For used machinery, replacement cost is usually the more realistic basis.

The most common confusion: valuation depreciation is not accounting depreciation

Depreciation in valuation has two components. Physical deterioration: loss of value from age, operating intensity and maintenance condition. Functional and economic obsolescence: loss of value from superior new technology or outdated design — a machine still running well can lose substantial value simply by being technologically obsolete.

Accounting depreciation, by contrast, merely allocates historical cost under accounting and tax policy; it is not a measure of market value. Taking “net book value” as the contribution value is wrong in principle: the books may be fully depreciated while the machine retains use and market value, or conversely the machine may be broken or obsolete while the books still carry a large value. Valuers determine the depreciation ratio through physical inspection, not by copying accounting figures.

Notes on contributing imported used machinery

First, prove lawful ownership: purchase contracts, invoices and import declarations — only lawful owners may contribute (Article 34). Second, separate the asset’s contribution value at the valuation date from the cost of putting it into operation in Vietnam: transport, installation and commissioning are project costs, not to be lumped into the contribution value. Third, the law on importing used machinery and equipment imposes age limits and import conditions — machinery ineligible for import cannot serve as contributed capital, so check before paying for a valuation.

Frequently asked questions

May net book value be used as the contribution value?
Not advisable. Accounting depreciation allocates cost; it does not reflect market value. Valuation must rest on physical inspection and one of the three approaches (market, cost, income). Parties agreeing on a book-based price remain jointly liable if it exceeds actual value (Article 36, Enterprise Law 59/2020/QH14).

How is machinery with no market transactions valued?
Use the cost approach: determine the replacement cost of a machine of equivalent utility under current technology, then deduct physical deterioration and obsolescence. This is the classic case of specialised machinery with few market references.

How is obsolescence measured when the machine still runs well?
Compare the used machine’s productivity, precision and energy consumption against current models of the same utility; the efficiency gap is quantified as an obsolescence ratio. A machine that runs fine but consumes twice the power at half the output of a new model has lost substantial value despite no breakdown.

Must VAT be excluded when referencing new-machine prices?
Yes. Advertised new-machine prices usually include VAT; under the credit method, the valuer strips VAT from the reproduction or replacement cost for like-for-like comparison. This is a technical step that must be shown clearly in the valuation report.

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Reviewed by the Legal Practice Group – FLAT LAW FIRM

This legal analysis has been verified against current Vietnamese regulations and cross-border FDI transaction practices by the attorneys at FLAT LAW FIRM.