Revaluation Assets

Revaluation assets can be expressed as the adjustments made in the fixed assets carrying value by adjusting it either downwards or upwards based on the fixed assets’ fair market value. Asset Revaluation generally means the change in the asset’s market value. It can be both increasing and decreasing. 

Today, this study material notes on Revaluation assets; you will get a detailed understanding of the concept of Revaluation assets revaluation accounting along with several revaluation methods and other related topics. 

Concept of Revaluation Assets 

The revaluation of assets or asset revaluation can be described as the change in the value of any assets. It can either increase or decrease both. Mostly, the revaluation of assets occurs in case there are differences between the asset’s current market value and the value of the company’s balance sheet. 

According to the US GAAP, there is a need to recognise the fixed assets based on the historical cost approach. Additionally, the fixed assets need to be revalued based on the fair or cost market value depending on which one is lesser. 

According to the IFRS, fixed assets should always be mentioned at the cost to either use the Revaluation model or the cost model. In the case of the cost model, the assets carrying value are not adjusted; however, it depreciates over time. In the case of revaluation assets, the asset cost can either be adjusted upwards or downwards based on the fair market value. Here the Revaluation assets develop a reserve named “Revaluation reserve.” Every time the value of assets increases, it is credited; however, it is debited in the revaluation reserve if the value decreases.

Explain the Revaluation Account 

The revelation account can be defined as an account responsible for determining a company’s net loss or profit on the revaluation of assets or liabilities. It also includes several items which are not recorded in books. If a new partner enters, or an old partner exists for any reason such as death or retirement, the revaluation accounting is done.

Revaluation Assets Method 

There are several revaluation methods used for revaluation accounting. These are as follows – 

1. Indexation method 

In the indexation method, the index is applied to the cost of assets to know the actual cost. The statistical department generally issues the index list. 

2. Current market price method 

The asset revaluation is done based on the current market price in this method. For the revaluation of buildings and land, the help of property dealers and real estate are taken. However, in machinery and plants, suppliers are mostly preferred. 

3. Appraisal method

An appraisal method is a common approach which describes the value of assets based on several factors including income, cost, fair market value, and so on.  

Advantages of Revaluation Assets 

There are a number of Advantages of the Revaluation of assets. These are listed below – 

• If the revaluation of assets is done on the upward side, the cash profit of the entity is increased
• For negotiating the assets price before some other company takes over the merger
• The credited balance in the Revaluation reserve is further used to replace the fixed assets once their useful lives end
• For decreasing the leverage ratio

Disadvantages of Revaluation of Assets 

There are multiple Disadvantages to the Revaluation of assets. These are listed below – 

• It is nearly impossible for any company to revalue their fixed assets, nor does the fixed assets cost hampered every year
• In such cases, the company is not liable to give the depreciation
• The depreciation of the fixed assets does not have any regular pattern to follow
• Revaluation of fixed assets is a time consuming and expensive process; therefore, companies are bound to spend a large amount on asset Revaluation

Balance Sheet 

The balance sheet can be defined as the statement of the organisation’s net worth as it includes all the assets and liabilities together. It also consists of a separate column for shareholder’s equity. Not just for profitable organisations, the balance sheet is created for non-profitable organisations as well. 

The balance sheet is a statement prepared in the same pattern as profit organisations. It consists of similar columns about the liabilities and assets of the organisation. In a balance sheet, the assets of the organisation are recorded on the right-hand side, whereas the liabilities are mentioned on the left-hand side.

The person who knows how to read or interpret a balance can state a lot about the company’s financial condition. Here are several factors that state the importance of a balance sheet. Let’s have a look- 

• Investors, creditors, and stakeholders prefer using the balance sheet to analyse an organisation’s overall financial position 
• The balance sheet is an ideal way of analysing the overall growth and development of the organisation
• When a company applies for the load, they are supposed to submit the balance sheet
• By looking at the balance sheet, the organisation’s stakeholders analyse the organisation’s liquidity position and status
• It also helps to analyse future expenses

Conclusion 

With this, we come to an end to our study material on Revaluation assets. The revaluation accounting of assets or asset revaluation is the change in the value of the assets which can be both increased or decreased. We covered several methods of Revolutionising assets, their advantages and disadvantages, and other related topics such as the balance sheet in detail. We hope the Revolutionary assets study material must help in attaining a greater understanding of this topic.