Revaluation Process

Revaluation Process

Revaluation of fixed assets is the process of increasing or decreasing their carrying value in case of major changes in fair market value of the fixed asset. International Financial Reporting Standards (IFRS) require fixed assets to e initially recorded at cost ut they allo! t!o models for susequent accounting for fixed assets" namely the cost model and the revaluation model. In practi practice" ce" the revalu revaluati ation on proces processs is taken taken y the organi organi#at #ation ionss as a continu continuous ous proces process. s. $hene $henever ver an orga organi# ni#at atio ion n goes goes for for the the reval revalua uati tion on of an asse assett or any prop proper erty ty"" plan plantt or  equipment" they need to continue this throughout the life of that asset or property" plant and equipment. %sually y using the revaluation process" the organi#ations asset values are decreased except the  uilding. For the revaluation of uilding and land" the value of the assets is usually increased. In the revaluation process" the first step of revaluation is the decision taken for revaluation. &ere" the organi#ations have to take the decision aout !hich asset the organi#ation need to revaluate or !hich asset is over'valued or under'valued as per their oservation. fter the decision taken for revaluating their asset" the organi#ations appoint the experts for revaluating the experts. ne follo!ing example on the revaluation process is eing given to make the process clear aout the current practice of revaluation y the revaluation experts after the decision is eing taken. For example" the revaluation expert or the auditor is eing appointed for revaluating a piece of  land !here the organi#ation is having a uilding. Suppose the cost value of the uilding is *+ ,rore and the cost of land is -+ ,rore. So in comination" the total value of asset is ++ ,rore to revalued. &ere" the auditor or expert !ill e appointed and after the appointment" the revaluation team !ill perform their field !ork. n the field !ork" they !ill note do!n that area/s market value of land and !ill note do!n the market value of that type of uilding. fter that field!ork" the experts !ill give a value of those assets. Suppose" the revaluation team revalued uilding as 0+ ,rore of market value and ++ ,rore for  that piece of land. 1hey !ill sho! this to the organi#ation and that amount !ill have to e passed  y the 2oard of 3irectors.

fter passing the revalue of the assets" the organi#ation needs to give their accounting treatment. For the case of revaluation" they need to create one equity account against the revalued assets. 1he name of that account !ill e 4Revaluation Reserve5. fter this given situation/s revaluation !ill e like6  Revaluation of Building--- Dr.

30 Crore

 Revaluation of Land------- Dr.

20 Crore

Revaluation Reserve ---------- Cr.

50 Crore

1his revaluation has to e continued y the organi#ation y a specific interval of time on a continuous asis. In this case" the value of the asset might e decreased. For this case" there !ill have to create an impairment account against the devaluated value of the assets. In case of land" there is no chance of arising depreciation ut in case of uilding" there is a chance of arising depreciation in a specific interval. Suppose the uilding is having a lifetime of  *+ years. So there is a depreciation of  ,rore for every year. nd if the revaluation happens in the year 0" there !ill have the depreciation of *.0 ,rore ut in efore" there is a deficit of + ,rore ecause of this revaluation. In that case" one more entry !ill e happened. 1his !ill e as follo!s6  Revaluation Reserve of Building --- Dr.  Depreciation --- Cr.

10 Crore 10 Crore

1his process is eing used to fulfil the overall revaluation process o f an organi#ation.