A company can account for changes in the market value of its various fixed assets by revaluing fixed assets. Revaluation of fixed assets is an accounting process for increasing or decreasing the carrying value of fixed assets of a company or group of fixed assets to account for any significant changes in their fair market value.
Initially, fixed capital or a group of fixed assets are posted in the balance sheet of the company at the value paid for the asset. After that, there are two methods used to account for changes in the value of fixed assets or assets.
Value model for the fixed asset
The simplest approach to accounting is the cost model. In the cost model, property, plant and equipment is carried at cost less accumulated depreciation and impairment losses associated with these assets. The cost model does not allow an increase in the value of an asset based on fair market value.
The main reason companies can choose a valuation approach to valuation is because the resulting number is a much simpler calculation with much less subjectivity. However, this approach does not provide an opportunity to obtain the exact value of non-current assets, since asset prices are likely to change over time, and the price does not always decrease. Quite often they go up. This is especially true for assets such as real estate..
Revaluation model
The second accounting approach is the revaluation model. When using the revaluation model, property, plant and equipment is initially recognized at cost, but the carrying value of property, plant and equipment may then increase or decrease depending on the fair market value of the property, plant and equipment, usually once a year. If an asset is reduced in value, it is considered to be written off. In accordance with International Financial Reporting Standards (IFRS), assets that are written off to their fair market value can be recovered, while in accordance with generally accepted accounting principles (GAAP), assets that are written off remain impaired and cannot be recovered.
The main benefit of this approach is that non-current assets are recorded at their true market value in the financial statements. Consequently, the revaluation model represents a more accurate financial picture of the company than the cost model. However, revaluations must be carried out at regular intervals, and management can sometimes be biased and set a higher revaluation than is reasonable for the market.Our company, with many years of experience, offers you to reassess the fixed assets of your company properly and in a short time. Our main goal is to save you from routine work and allow you to focus on the main tasks.