Revaluation - what is revaluation?
Definition: An increase in the value of an asset to reflect its current market value.
In a company’s accounts, the values of all of its assets - fixed assets, current assets, etc. - must be recognized and documented.
These initial values are retrieved from the current market values for those assets.
Certain assets – most often being the current assets of a company - have a value that may change over time as a result of fluctuations in the market value.
A revaluation is necessary when an asset increase in value due to the market. If the asset were to decrease in value, than you would need to perform an impairment.
A revaluation is therefore the positive difference between the fair market value of an asset and its original cost, minus depreciation. Revaluations are recognized directly in equity and therefore will not affect the income statement.
What assets can be revalued?
There are generally different rules on which assets could be revalued, so it's a good idea to consult with an accountant or other professional in the field.
It is important to remember that revaluations are made based on objective assessments or permanent and substantial increases in value.