An Insight Into Revaluation Of Assets

Asset revaluation can be defined as making required adjustments in the carrying value of fixed assets. This adjustment can be made downward or upward based on the fair market value of fixed assets. In short, revaluation would contemplate both the appreciation as well as depreciation rate in the value of fixed assets. Revaluation of the asset would show you the change in market value concerning assets. This blog will discuss further asset revaluation.

Methods of asset revaluation

1. Indexation method
   This method involves the use of an index that is applied to the cost of assets to know the current cost.  The index list is issued by the department of statistics.
   
   
2. Appraisal method
   This method functions by ensuring that fixed assets are not over or under-valued. This further involves a technical valuer who performs certain assessments involving the assets aiming to determine the market value. A complete assessment is necessary to issue the insurance policy for fixed assets. Below mentioned are some points that would help to determine the fair market value of an asset.
   
   
   -Purchase date of fixed assets for determining the age of fixed assets.
   -Usage of assets like 12 hours, 8 hours or 24 hours.
   -Asset types such as machinery and plant, Building and land.
   -Maintenance and repair policy of the enterprise for fixed assets
   -Availability of spare parts in the upcoming days.
   
   
3. Current market price method

• Revaluation of the building and the land
  With the help of real estate property dealers, you can get the fair market value of the building that is available in the market.

• Machinery and plant
  With the help of suppliers, you can get to know the exact value of machinery and plant in the market.
  
  

Benefits of fixed asset revaluation

1. Showcase of a reasonable wealth position
   Asset revaluation is done aiming to find out the exact valuation of the company's assets. The final statements will show the recorded value of assets with a fair value. Revaluation of assets is crucial to companies having an initial public offering (IPO) as the company can further use it for compiling asset values at realistic prices.
   
   
2. Controlling capital
   This revaluation eases the process of sanctioning loans from banks. This is because they can reduce the bank's debt-to-equity ratio. This further allows the company to borrow debt from various banks in need.
   
   
   The capital adequacy ratio increases with an increase in the capital amount of the company. This makes them eligible to borrow loans from banks.
   
   
   As bank will also make a profit from the company in this case. Hence, asset revaluation has been proven beneficial for controlling a company's capital.
   
   
3. Attracting investors
   This is another advantage of asset revaluation that has proven advantageous by increasing the financial performance of the company. You can use this further for attracting investors. You can start doing so by offering significant shares of the company or by issuing bonds. After conducting necessary calculations involving debt to equity ratio and debt to asset ratio, the creditors will confirm their interest in investing in your company.
   
   
4. Reducing tax liability
   The value of the company's assets has been low over years but will gradually increase. Upon increase in the value of assets, it will further affect the rate of depreciation of the company's cost. An increase in depreciation cost can be evidenced that will further affect the financial statements of the company. Furthermore, this will decrease the generated profit, reducing the burden of tax obligation in that particular year.
   
   
5. Help companies in planning to merge
   This evaluation also helps companies that are aiming to merge with other companies. The companies that are planning to merge need to assess their fixed assets. Hence, this will yield the true value of the asset.

The function of asset revaluation

• To arrange the sales of fixed assets to other parties with proper planning.
• To negotiate the fair value of the fixed assets preliminary to merging with other companies or before the company is acquired.
• The outcome of the asset evaluation helps to update the market price of fixed assets that have shown a constant increase in price since their initial purchase.
• They also give a reality check on whether the company have enough funds to substitute the fixed assets.

How To Prepare Your House For Sale

Wrapping Up

Asset revaluation is a difficult activity to fulfil as you have to pay quite an amount of money to the service provider for their fixed asset valuation services. The financial performance of your company depends on how correctly you are managing your business. Proper management will show significant growth in the financial performance of the company.