Revaluation Reserve
Candlefocus EditorA revaluation reserve is essentially an accounting entry that is booked to increase a company’s equity and is created when an asset’s value appreciates beyond its book or historical value. It can be caused by a rise in the market value of an asset, such as stocks and bonds, or from a change in its exchange rate.
At the same time, revaluation reserves are also used to lower the value of an asset, in the case of an impairment. This is done prior to an impairment provision being taken on the balance sheet. The revaluation reserves are created to ensure that the company meets its stated liability when it comes to any impairments that have taken place.
The process of revaluing assets is a common technique used by many companies to keep their balance sheets up-to-date. This can be beneficial if the market value of the asset is higher than the book value. Revaluation reserves provide the company with both a financial and accounting advantage.
For instance, if the revaluation reserves increase the value of the asset, then this could lead to increased profits. This is because a higher value of the asset would generate more income when it is sold. Essentially, this gives the company more money to invest back into its operations.
At the same time, revaluation reserves also provide an accounting benefit because the company can rest assured that its assets are always accurately represented on the balance sheet. This will benefit the company in the long run since investors and creditors take the assets’ value into consideration before providing a loan or investing.
Overall, revaluation reserves are a common accounting practice that is used to accurately display the value of assets on a company’s balance sheet. This practice is both advantageous financially and accounting wise, since it boosts the company’s equity and provides more accurate information to investors and creditors.