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Revaluation of assets

The fixed assets of a business are frequently subject to change in value, both real and nominal. Real value can change where the asset is of a durable type, e.g. land, the demand for which has forced up the market price. Nominal values rise continually in times of inflation, where the fall in the value of money is reflected in higher replacement costs. Some increases in value are often acknowledged in the published accounts of the business, where the asset value is restated in terms of current prices. In such instances the words ‘at cost or valuation’ after the assets will appear in the balance sheet, and the relevant accumulated depreciation totals will also be revised.

In company accounts specific rules which were extended by the 1980 Companies Act apply. Where any fixed assets have been the subject of revaluation, certain additional information must be given by way of note to the accounts if not contained therein. Each revalued asset must be shown at its revalued amount, distinguishing between opening and closing figures. If the revaluation has been made in the year to which the accounts relate, then both the names of the valuers and the basis of the revaluation must be supplied. In addition to the opening and closing figures, the notes must contain details of any acquisitions and disposals plus depreciation provided for the year and the accumulated total of depreciation provisions. Any other transfers to or from fixed set balances must also be detailed, as must the effect of any application of alternative accounting rules.

The 1967 Companies Act included a provision to the effect that where directors are of the opinion that the value of fixed assets, comprising land or interest therein, differs materially from the value shown in the accounts, then that fact must be stated in the directors’ report. This provision is confirmed by the 1985 Companies Act.

Reference: The Penguin Business Dictionary , 3rd edt.