Revaluation of asset can increase profit ?
01Story
Accountant help to increase profit of the company for bankers !
02Background
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.
03Analysis
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
04Conclusion :
The revaluation of assets will not increase your current profit but revaluation reserve.
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