The physical depreciation determination is the step that most distinguishes a Government Approved P&M Valuer’s certificate from a desktop estimate. The physical inspection establishes:
Review of the equipment’s maintenance log (if available); visual assessment of paint, lubrication, and housekeeping condition; evidence of scheduled preventive maintenance vs breakdown-driven reactive maintenance.
Where the equipment has an hour meter (engines, compressors, generators), the recorded hours provide a direct utilisation metric. For machine tools, the production log provides the utilisation basis. High utilisation reduces RUL; low utilisation extends it.
Wear marks on machined surfaces; bearing noise and vibration in running equipment; oil leaks and seal condition; structural crack inspection on frames and pressure vessels; electrical insulation condition on motors and switchgear; corrosion on wetted surfaces in chemical and utility equipment.
The key output of the physical inspection. For a twelve-year-old CNC machining centre with a Total Economic Life of 20 years: if the physical condition is “excellent” (evidence of consistent preventive maintenance, low utilisation), the RUL may be 10–12 years. If the condition is “poor” (deferred maintenance, high utilisation, significant wear), the RUL may be only 3–5 years.
The physical depreciation in the second case is far greater than the age-based standard rate would suggest.