It’s a fundamental concept of accounting that the accounts must give a ‘True and Fair’ view of the state of affairs of the company at its year end.
In order to achieve this a company may need to revalue its fixed assets, it could be Plant or Property, larger companies will refer to International Accounting Standards and Financial Reporting Standards but most SME’s use FRSSE http://www.frc.org.uk/documents/pagemanager/asb/FRSSE/FRSSE%20Web%20optimized%20FINAL.pdf
Accounting Explained gives a good summary of the entries related to revaluations http://accountingexplained.com/financial/non-current-assets/revaluation-of-fixed-assets
Here are some things you need to know:
- Revaluing Assets does not create a tax liability
- Revaluing Assets does not create a profit (it creates a revaluation reserve)
- Depreciation Rates may need to be reviewed (as they could be too high if you need to revalue regularly)
- Revaluation will increased the Net Worth of your business
- The Directors can revalue the assets but the value needs to be carefully worked out as an arms length market value
steve@bicknells.net
