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IFRS revaluation adjusts the value of fixed assets, often property, plant, or equipment, to reflect fair market value instead of historical cost. It can result in gains or losses on the balance sheet and net income. Specialized assets may require estimation. Consultation with an IFRS licensed accountant is recommended.
An IFRS revaluation is an adjustment in which a company must change or alter the value of a fixed asset for a specific purpose. The most common revaluations focus on a company’s property, plant, or equipment, which are included in the broad group of fixed assets. An IFRS revaluation changes the historical cost value of the asset, which is likely how the company recorded the asset in the general ledger, to fair market value. The purpose of such adjustment is to present accounting information as accurately as possible. When there is no market for a specific fixed asset, an accountant may need to estimate the value of an asset.
IFRS generally require a fixed asset to be recorded at historical cost, which is the price a company paid for the item. Some additional costs may also be on this account, such as shipping or shipping costs, setup fees, and costs to test the equipment. The problem with this accounting theory is that the historical cost is not the market value of the fixed asset. For example, the asset may rise or fall in terms of market value over time. Therefore, a company’s balance sheet may be understated or overstated at some point, skewing the actual financial health of a company.
Under certain conditions, a company may need to do an IFRS reassessment on specific fixed assets. The IFRS revaluation model has specific guidelines that a company must follow; It may be best for a company to consult an IFRS licensed accountant to learn the rules that apply in a given situation. In most cases, the company needs to find a market where similar assets are bought and sold under free market principles. Accountants must be very careful when selecting these markets for an IFRS revaluation and potential prices for similar assets. In some cases, this market does not exist for specialized assets.
If an IFRS revaluation results in a decrease in the value of a fixed asset, the company will most likely need to make an adjustment that results in a loss on the books. The loss reduces the value of the asset on the balance sheet and most likely results in a loss against net income. A gain in asset value can work in a similar way, where the balance sheet value increases and a gain goes against the company’s net income for the relevant period. Other technical problems may arise due to the potential complexity of these accounting standards.
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