Revaluation of Assets Concept

Definition – Accounting Concept for Revaluation of Assets:

Accounting concept for revaluation of assets defines and states that, it is proper adjustment made to the recorded value (price) of an asset to accurately its current market value (price).

Explanation and Example:

One difficulty that results from the changes of money values in inflationary times is the false valuation given on balance sheets to assets. Thus suppose a building was purchased in 2018 for $100000 but in 2019 it is worth $250000. If the balance sheet value is not altered the balance sheet value of the business would be understand.

The solution to this problem is to revalue the assets periodically to give a true valuation. This revaluation of assets must be professionally done by a qualified valuer. Take the example in the last paragraph of a property that has risen in value from $100000 to $250000. This will increase the assets side of the balance sheet by $150000. This profit is in fact a capital appreciation and will give rise to owner’s capital by $150000. However, in case companies capital represents shares issued to ordinary shareholders so they cannot be changed due to revaluation. So this capital profit is placed in revaluation reserves.