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Accounting Treatment of Revaluation

  • 1.  Accounting Treatment of Revaluation

    Posted 01 October 2018 18:36
    Post revaluation of assets the Fair Value becomes the new Book Value . If the accounting policy is to depreciate an asset giving a residual value as a percentage of the acquisition cost, say 10%, can the residual value of the revalued asset be taken as 10% of the Fair Value and the asset depreciated between the Fair Value and the new residual value over the revised (extended or reduced) remaining useful life of the asset, or should we still stick to 10% of the original acquisition cost.

  • 2.  RE: Accounting Treatment of Revaluation

    Posted 02 October 2018 21:35
    ​​Hi Dharmanand,

    Residual value is an estimate (or actual if known) of the proceeds you will receive at the time the asset is disposed, so it should be reflective of the current market value of the proceeds that you will receive at the point in time when they are sold or traded.

    I would suggest that if you have historic data, to do some analysis of past proceeds from sale of the respective asset types to see if there is a pattern or rule that you could use as a basis for using a proportionate estimate of original cost or even current cost. Using original cost would be easier as current cost is moving through the life of the asset, where as original cost is static for the useful life of the asset. From your analysis you may find evidence to support your proposed rule, residual value is 10% of original cost or 10% of current cost. Whatever the result you will have the data to support the basis for the residual values.

    If there is no or limited data available then do some research to see what you could expect to receive for these assets at the age and condition at the end of there useful life and they will be disposed.

    If you do not receive any value for the disposal of the assets by sale or trade then the residual value should be $0, estimating the value of any materials recycled in the construction of a new asset is not considered in the residual value.



    John Wunhym
    City of Perth
    Financial Asset Management Officer


  • 3.  RE: Accounting Treatment of Revaluation

    Posted 02 October 2018 21:35
    Either action may be appropriate or neither.  What you need to do is reassess what you think the residual value of the asset might be.  This is actually an annual requirement under the accounting standard.  The basis for the reassessment is that residual value is an accounting estimate and you need to reassess whether there have been any changes that have occurred that might affect the residual amount, such as a revaluation.

  • 4.  RE: Accounting Treatment of Revaluation

    Posted 03 October 2018 18:33
    ​I think you should be able to find guidance in the IFRS rules (so financial accounting), which specify by which means the actual value of an asset should be determined. This concerns the commercial market value in which aspects like purchase value and end of life assessment of course have their role.

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    Principal Consultant

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