Revaluation of Fixed Assets - Upward Revaluation

Upward Revaluation

Accountancy
Key concepts
  • Accountant
  • Accounting period
  • Accrual
  • Bookkeeping
  • Cash and accrual basis
  • Cash flow forecasting
  • Chart of accounts
  • Convergence
  • Journal
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  • Cost of goods sold
  • Credit terms
  • Debits and credits
  • Double-entry system
  • Mark-to-market accounting
  • FIFO and LIFO
  • GAAP / IFRS
  • Management Accounting Principles
  • General ledger
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  • Historical cost
  • Matching principle
  • Revenue recognition
  • Trial balance
Fields of accounting
  • Cost
  • Financial
  • Forensic
  • Fund
  • Management
  • Tax (U.S.)
Financial statements

Balance sheet

  • Cash flow statement
  • Income statement
  • Statement of retained earnings
  • Notes
  • Management discussion and analysis
  • XBRL
Auditing
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  • GAAS / ISA
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Accounting qualifications
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  • ACCA
  • CIMA
  • CGMA

The FASB in the U.S. does not allow upward revaluation of fixed assets to reflect fair market values although it is compulsory to account for impairment costs in fixed assets (downward revaluation of fixed assets) as per FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

In other countries, upward revaluation is mainly done for fixed assets such as land, and real estate whose value keeps rising from year to year. It seems the concept of upward revaluation of fixed assets such as real estate has not been widely welcomed by a majority of companies in USA on account of fear of paying higher property and capital gains taxes. Further, the provision against upward restatement ensures conservative valuation.

The United Kingdom, Australia, and India allow upward revaluation in the values of fixed assets to bring them in consonance with fair market values. However, the law requires disclosure of the basis of revaluation, amount of revaluation made to each class of assets (for a specified period after the financial year in which revaluation is made), and other information. Similarly, law prohibits payment of dividend out of any reserve created as a result of upward revaluation of fixed assets. The law in Australia has been amended recently to allow for the payment of dividends from the increase in value of non-current assets in certain instances where a company meets other liquidity tests (see section 254T of the Corporations Act 2001 (Cth)).

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