Revaluations and Impairments

Managing revaluations and impairments of fixed assets

One of the areas of complexity that our users come to us with is that of managing revaluations and impairments of their fixed assets.

But what are these and when do you need them?

In broad terms, both sets of accounting standards require accounts to present a true and fair view of the numbers of the business.

For Fixed Assets, this is generally taken to mean that the value should be the approximate value of the asset if it was to be sold in its current state.

And a reasonable way of estimating this is by the traditional depreciation methods that we all know and love.

But sometimes the market value of an asset can fluctuate for unforeseen reasons hence the need to revalue or impair an asset.

Revaluations

IFRS allows a business to choose to adopt a policy of revaluing assets but these need to apply to all the assets in that class so you can’t pick and choose what to revalue.

There are also requirements about how often you have to revalue these assets.

Property companies are a good example of the kind of business that adopt revaluation as a main accounting method.

Once an asset has been revalued, it must continue to be revalued for its remaining life.

If the asset is revalued upwards then that amount is taken to a special revaluation reserve that is displayed in the Shareholders Equity part of the balance sheet.

If an asset is valued down, then any existing revelation reserve for that asset is written off first and then any further amount must be shown as a loss in the P&L.

Subsequent upwards adjustments can be written back to the P&L up until the loss has been fully reversed and then the remaining uplift is back to the revaluation reserve.

Easy!

US GAAP does not permit plant, property and equipment to be reported under the revaluations method.

Impairments

Impairments are used for assets that are not subject to revaluations and are only allowed as downward adjustments (but under IFRS may be reversed as noted below). An impairment may be caused by an event outside of the control of the business, examples being:

  • A council rezoning negatively impacting values of both land and buildings held by a business
  • A competitor releasing a revolutionary new product or approach that reduces the expected value of future output from existing plant, thus reducing the value of that plant on the open market

As noted above (under IFRS but not US GAAP) the impairment can be reversed if there is a change in the circumstances that caused the original impairment. However, the reversal can only be made to a cap of the net book value that the asset would have been had it continued to be depreciated under the method used prior to the impairment.
Photo of Suzanne Walker- Clear Path Accounting Team Member

We love using AssetAccountant. The time savings for every client’s depreciation entries means not only is profit increased on every job, but our additional team capacity can be directed to more valuable work. There is literally no risk in the investment of AssetAccountant fixed assets software.

Suzanne Walker - Director, Clear Path Accounting

How AssetAccountant™ handles revaluations and impairments

Adjustments: AssetAccountant™ allows adjustments for your tax and/or accounting depreciation registers. You are able to nominate a change to either the original cost base OR an increase/decrease to the accumulated depreciation. All changes are carried through to your next journal posting.

Revaluations/Impairments: Is an accounting concept only. AssetAccountant™ will allow a revaluation either up or down. If the revaluation is increased, a revaluation reserve will be maintained and shown in the details of the individual asset and offset with any future impairment.

AssetAccountant™ will allow you to manage and reverse impairments (where allowed).

We keep track of what depreciation would have been had the asset not been impaired so that you keep your write backs within the accounting rules.

AssetAccountant™ keeps a detailed audit trail of every event.

Users may also provide detailed reasoning for the revaluation for future scrutiny by auditors and/or successors.

AssetAccountant™ is free to use or trial for up to 25 assets.

Depreciation calculations and journals for both tax and accounting methods is made easy

  • AssetAccountant™ is a comprehensive cloud-based fixed asset register for managing depreciation developed by Accountants for Accountants.
  • AssetAccountant™ combines sophisticated interpretation of Tax and Accounting rules with a modern user interface design, to simplify the process of creating and maintaining fixed asset registers.
  • AssetAccountant™ is priced to suit accounting firms and businesses of all sizes.
  • AssetAccountant™ is currently available in Australia and New Zealand.

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AssetAccountant™
Australia/ New Zealand

Contact us to learn more about AssetAccountant™ & how it can help you master asset depreciation

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