Revaluation of asset can increase profit ?

Story

Accountant help to increase profit of the company for bankers !

Background

My company profit is low or even make loss for this financial year end.

I scare can not get bank borrowing or current bank "tarik balik" the banking facility.

Can i revalue my assets to increase my company profit this year ? I bought my factory 10 years ago, the market value is more than the cost.

Analysis

1. What is the meaning of Revaluation of fixed assets?

Revaluation is an action which revises the value of a company’s fixed assets to its fair market value.

The amount of revaluation is based on the net book value of the fixed assets.

Net book value = Cost - Accumulated Depreciation.

2. What is the purpose of Revaluation of fixed assets?

To keep the value of fixed assets updated to accurate market value.

3. Do you know how to record the double entry of

Revaluation of fixed assets?

Revaluation Gains

Dr Fixed Asset (The difference amount between valuation and original cost)

Dr Accumulated Depreciation (Historical cost accumulated depreciation)

Cr Revaluation Reserve

Revaluation Losses

Dr Revaluation Reserve

Dr Retained Earnings

Cr Fixed Asset (The difference amount between valuation and original cost)

4. Let’s have an example on revaluation of assets

ABC company purchased a building on 01/02/2017 for RM 1 million. The useful life is 50 years. The company revalued the building to its fair market value is RM 1.5 million on 01/02/2020.

Calculation:

Net Book Value = (RM 1,000,000 – (RM 1,000,000/50 years x 3 years)) = RM 940,000

Valuation amount = RM 1,500,000

Gain on revaluation = RM 560,000

Double entry:

Dr Building cost = RM 500,000 (RM 1,500,000 - RM 1,000,000)

Dr Accumulated depreciation = RM 60,000 (RM 1,000,000/50 years x 3 years)

Cr Revaluation reserve = RM 560,000

Conclusion :

The revaluation of assets will not increase your current profit but revaluation reserve.

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Audit, AccountKtp KtpDecember 24, 2020revaluation reserve, profits