Revaluation of fixed assets

In finance, a revaluation of fixed assets is an action that may be required to accurately describe the true value of the capital goods a business owns. This should be distinguished from planned depreciation, where the recorded decline in value of an asset is tied to its age.

Fixed assets are held by an enterprise for the purpose of producing goods or rendering services, as opposed to being held for resale for the normal course of business. An example, machines, buildings, patents or licenses can be fixed assets of a business.

The purpose of a revaluation is to bring into the books the fair market value of fixed assets. This may be helpful in order to decide whether to invest in another business. If a company wants to sell one of its assets, it is revalued in preparation for sales negotiations.

It is common to see companies revaluing their fixed assets. It is important to make the distinctions between a 'private' revaluation to a 'public' revaluation which is carried out in the financial reports. The purposes are varied:

The common methods used in revaluing assets are:

Under this method, indices are applied to the cost value of the assets to arrive at the current cost of the assets. The Indices by the country's departments of Statistical Bureau or Economic Surveys may be used for the revaluation of assets.

Under this method, technical experts are called in to carry out a detailed examination of the assets with a view to determining their fair market value. Proper appraisal is necessary when the company is taking out an insurance policy for protection of its fixed assets. It ensures that the fixed assets are neither over-insured nor under-insured. The factors which are considered in determining the value of an asset, are as follows:

Selective revaluation can be defined as revaluation of specific assets within a class or all assets within a specific location.

A manufacturing company may have its manufacturing facilities spread over different locations. Suppose it decides to undertake a revaluation of its plant & machinery. Selective revaluation will mean revaluing specific assets (such as boiler, heater, central air-conditioning system) at all locations, or revaluing all items of Plant & Machinery at a particular location only. Such revaluation will lead to unrepresentative amounts being shown in the Fixed Assets Register (FAR). In case of revaluation of specific assets of a class, while some assets will be shown at a revalued amount others will be shown at historic cost. The same will happen in case of revaluation of all assets of plant & machinery at a particular location only.

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Wikipedia