Revaluation of Assets - SS2 Accounting Lesson Note

Asset revaluation is the process of adjusting the carrying value of an asset on a company's balance sheet to its current market value. It can help to provide a more accurate picture of a company's financial health and can help to inform important business decisions. This is done to ensure that the asset is being accurately represented in the financial statements and to reflect changes in the value of the asset over time.

For example, let's say a company owns a piece of land that was purchased for ₦10 million several years ago. However, due to changes in the local real estate market, the land is now worth ₦20 million. In this case, the company could choose to revalue the land on its balance sheet to reflect its current market value of ₦20 million.

To revalue the asset, the company would first need to engage a professional valuer to determine the fair market value of the asset. Once the fair market value is determined, the company would adjust the carrying value of the asset on its balance sheet to reflect the new value.

In our example, the company would increase the value of the land on its balance sheet from ₦10 million to ₦20 million. This would result in a ₦10 million increase in the value of the company's assets and a corresponding increase in its equity.

It is important to note that revaluing an asset can have both positive and negative effects on a company's financial statements. While it can increase the value of the company's assets and equity, it can also result in increased depreciation expenses and tax liabilities in the future.