21 Lecture

1. What is the purpose of revaluation of fixed assets? a) To decrease the value of fixed assets b) To increase the value of fixed assets c) To reclassify the fixed assets d) To dispose of the fixed assets

Answer: b) To increase the value of fixed assets

2. Which accounting standard provides guidance on revaluation of fixed assets? a) IAS 16 b) IFRS 9 c) IAS 36 d) IAS 10

Answer: a) IAS 16

3. When should a company revalue its fixed assets? a) Whenever it wants to increase the value of the assets b) When there is a significant increase or decrease in the market value of the assets c) At the end of every fiscal year d) Only when the assets are disposed of

Answer: b) When there is a significant increase or decrease in the market value of the assets

4. What is the impact of revaluation of fixed assets on the income statement? a) It does not have any impact on the income statement b) It results in an increase in profit c) It results in a decrease in profit d) It depends on the revaluation amount

Answer: d) It depends on the revaluation amount

5. How is the revaluation reserve reported on the balance sheet? a) As an asset b) As a liability c) As equity d) It is not reported on the balance sheet

Answer: c) As equity

6. What is the purpose of creating a revaluation reserve? a) To provide a source of funding for future capital expenditures b) To offset any future losses that may occur on the fixed assets c) To reflect the increase in the value of the fixed assets on the balance sheet d) To decrease the value of the fixed assets

Answer: c) To reflect the increase in the value of the fixed assets on the balance sheet

7. What is the impact of revaluation of fixed assets on the depreciation expense? a) It results in an increase in depreciation expense b) It results in a decrease in depreciation expense c) It does not have any impact on depreciation expense d) It depends on the revaluation amount

Answer: a) It results in an increase in depreciation expense

8. Which of the following is not a method of revaluing fixed assets? a) Cost model b) Revaluation model c) Market model d) Discounted cash flow model

Answer: c) Market model

9. What is the journal entry to record the revaluation of fixed assets? a) Debit revaluation reserve, credit fixed asset b) Debit fixed asset, credit revaluation reserve c) Debit revaluation reserve, credit retained earnings d) Debit retained earnings, credit revaluation reserve

Answer: b) Debit fixed asset, credit revaluation reserve

10. Which of the following is a limitation of revaluation of fixed assets? a) It is time-consuming and expensive b) It can only be done for tangible assets c) It may result in overvaluing assets d) It is not allowed under accounting standards

Answer: c) It may result in overvaluing assets

1. What is meant by the revaluation of fixed assets? Answer: Revaluation of fixed assets refers to the process of updating the value of a company's fixed assets to their current market value.

2. What are the reasons for revaluation of fixed assets? Answer: The reasons for revaluation of fixed assets are the increase in the market value of fixed assets, the change in their useful life, or the significant improvement in their condition.

3. How is the revaluation reserve calculated? Answer: The revaluation reserve is calculated by taking the difference between the current market value of the fixed asset and its original book value, and recording this difference in a separate reserve account.

4. What is the journal entry for revaluation of fixed assets? Answer: The journal entry for revaluation of fixed assets includes debiting the asset account and crediting the revaluation reserve account.

5. What is the impact of revaluation of fixed assets on the financial statements? Answer: The revaluation of fixed assets impacts the balance sheet by increasing the value of fixed assets and the revaluation reserve. It also affects the income statement through the depreciation charge.

6. What is the effect of revaluation of fixed assets on tax liabilities? Answer: The revaluation of fixed assets can result in an increase in the tax liabilities of the company as it increases the value of fixed assets and the corresponding depreciation charge.

7. How often should fixed assets be revalued? Answer: The frequency of revaluation of fixed assets depends on the company's accounting policy and the type of asset. Generally, it is revalued once in every three to five years.

8. What are the advantages of revaluation of fixed assets? Answer: The advantages of revaluation of fixed assets include reflecting the current market value of assets, enhancing the credibility of financial statements, and facilitating better decision-making.

9. What are the limitations of revaluation of fixed assets? Answer: The limitations of revaluation of fixed assets include the subjectivity of the valuation process, the possibility of overvaluing assets, and the impact of revaluation on tax liabilities.

10. How can a company ensure the accuracy of the revaluation of fixed assets? Answer: A company can ensure the accuracy of the revaluation of fixed assets by engaging a professional valuer, following the appropriate accounting standards, and maintaining proper documentation.

Revaluation of fixed assets is the process of increasing or decreasing the value of an asset in the books of accounts due to a change in its market value. The purpose of revaluation is to reflect the true value of the asset in the books of accounts, which may differ from its historical cost. The process of revaluation involves four steps:

1. Identification of assets to be revalued: The first step is to identify the assets that need to be revalued. Generally, it includes fixed assets that have a significant value or those that have undergone major changes since their acquisition.
2. Valuation of assets: The next step is to determine the fair value of the assets to be revalued. The fair value can be determined by getting a valuation report from a qualified valuer or by using an appropriate valuation method.
3. Adjustment of the book value: After determining the fair value, the book value of the asset is adjusted to the new value. The increase or decrease in the value is recorded in a revaluation reserve account.
4. Disclosure: The final step is to disclose the revaluation of assets in the financial statements. The disclosure includes the details of the revalued assets, the method used for valuation, the amount of increase or decrease in the value, and the impact of the revaluation on the financial statements.

Revaluation of fixed assets has several benefits, including a more accurate representation of the company's financial position, improved asset management, and better decision-making. However, it can also have some drawbacks, such as increased administrative costs, reduced comparability with other companies, and the risk of overvaluing assets. In conclusion, revaluation of fixed assets is an important accounting process that helps companies to reflect the true value of their assets in the books of accounts. It is essential to follow the appropriate procedures and guidelines to ensure accurate and reliable financial reporting.