Revaluation of fixed assets and funds of an enterprise, asset revaluation

Revaluation of fixed assets of a company, asset revaluation

Revaluation of business assets is a change in the initial value of the assets, which must be taken into account for determining fair value, i.e. the price at which these assets can be sold at the public market today.

The objectives of the revaluation may be different case-by-base, for example, an increase in the investment attractiveness of an enterprise, the need to increase the net assets of an enterprise if their value was lower than the share capital or the use of companys assets as collateral or a guarantee.

The International Financial Reporting Standards (IFRS) obliges every company to reassess the main assets of the company in the event of a significant reduction in value as a result of mental or physical deterioration, damage, loss, loss of productivity, lower sales of products manufactured by equipment, etc. Before the revaluation of fixed assets, it is necessary to carry out the so-called impairment test (Impairment of assets). According to IFRS, all shares and securities are accounted for at fair value, this implies the need for a revaluation of shares and securities with each reporting period.

In accordance with IFRS, the revaluation of fixed assets should be conducted on a regular basis, so that the current amount of property is not materially different from its fair value according to the date on the balance sheet. IFRS (IAS) 16 distinguishes two ways to reflect relating revaluation:

  • Accumulated depreciation at the date of revaluation is revalued in the same proportion as the change in the carried value of the asset before depreciation and amortization. After the revaluation (residually) the value of an asset is set to its revalued amount.
  • The amount of accumulated depreciation at the date of the revaluation is debited to reduce the carried value of the object before taking depreciation into account, then the result is re-valuated for fair value.

In any revaluation, it is necessary to confirm the current market or fair value of required documents (price lists, statistical data, reports on the quotes of securities at the end of the revaluation trading date, the conclusions of an independent appraiser, etc.)
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