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Fair Value: In accounting and economics, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. One example of where fair value is an issue is a college kitchen with a cost of $2 million which was built five years ago. If the owners wanted to put a fair value measurement on the kitchen it would be a subjective estimate because there is no active market for such items or items similar to this one.
Source:http://en.wikipedia.org/wiki/Fair_value
Revaluation Reserve: An accounting term used when a company has to enter a line item on their balance sheet due to a revaluation performed on an asset. This line item is used when the revaluation finds the current and probable future value of the asset is higher than the recorded historic cost of the same asset.
A revaluation reserves fall under the category of supplementary capital, in that it does not reflect ordinary business results. Because of this revaluation, reserves typically are not counted as capital that can be leveraged for financial institution's, such as a bank's, contractual provisions.
(Source:http://www.investopedia.com/terms/r/revaluationreserves.asp)
Relationship between the Two: The purpose of a revaluation is to bring into the books the fair market value of fixed assets. This may be helpful in order to decide whether to invest in another business. If a company wants to sell one of its assets, it is revalued in preparation for sales negotiations.
(Source:http://en.wikipedia.org/wiki/Revaluation_of_fixed_assets)
Therefore, revaluation reserve is added to the balance sheet as per the fair value of the assets. The relationship between these two terms is fundamental. By assessing the fair value you can reevaluate an asset and add the extra/added value in the balance sheet as Revaluation Reserve.
What else can I help you with?
Define capital reserve?
Capital reserve is the amount created to increase in market value of assets at the time of revaluation of assets.
Can dividend be declared out of revaluation of fixed assets justify?
No, Dividend Can't be declared out of revaluation of fixed assets. dividend may be declared by a company for that year out of the accumulated profits earned by it in previous years and transferred by it to the reserves, But not from revaluation reserve as its a unrealized profit...
Revaluation Surplus is it a non-distributable reserve?
it is non-distributable as it represents unrealised profits on the revalued assets. it is another capital reserve. the relevant part of a revaluation surplus can only become realised if the asset in question is sold, thus realising the gain.
What is surplus on revaluation of asset?
Surplus on revaluation of assets means that on the even of revaluation, more assets has appreciate in their value then depreciate.
What is revaluation account?
revalutation account is opened to record the revaluation of assets and liabilities.the profit or loss arising because of revaluation is transfered to old partners capital account in their old profit sharing ratio. Companies from time to time check the values of assets and liabilities for there book values and if there is some changes in book values of assets and liabilities that revaluations are made through revaluation account which are later charge to profit and loss account or transferred to reserve account.
Can revaluation reserve converted into shares?
Yes, a revaluation reserve can be converted into shares, but this process typically involves the company’s shareholders' approval and adherence to relevant regulatory requirements. When a company increases the value of its assets, the revaluation reserve reflects that increase, and it can be capitalized by issuing new shares to shareholders. This conversion effectively transforms the reserve into equity, enhancing the company's capital base. However, specific procedures and implications depend on the jurisdiction and the company's articles of association.
What is the meaning of surplus on revaluation of fixed assets?
While in the process of revaluation of assets and liabilities, if the value of some assets increase more than the decrease in the value of some fixed assets then the difference of this increase and decrease if positive is called surplus on revaluation of fixed assets.
Accounting treatment for surplus of revaluation of fixed assets?
a revaluation increase is credited to equity as a revaluation surplus, unless it's a reversal of a revaluation decrease, when it should be recognised as income.
What is the revaluation surplus?
Companies from time to time do the process of revaluating its assets and liabilities for many reasons like liquidation or selling business or any other reason. From the process of revaluation its assets and liabilities surplus or defecit generate. If there is revaluation surplus it means that assets of company has more appreciated then assets of the companies reduced in value.
What is the revaluation expense account?
Revaluation account is the account which is used to revaluate the assets and liabilities in business from time to time to find the actual value of assets and liabilities shown in balance sheet.
What is revaluation of fixed assets?
Revaluation is the upward or downward adjustment in the value of a fixed asset to account for major changes in its fair market value. FASB does not allow upward revaluation.
Does revaluation surplus included in the computation of book value per share?
Yes, revaluation surplus is included in the computation of book value per share. It is recorded in the equity section of the balance sheet and reflects the increase in value of assets after revaluation. Therefore, when calculating book value per share, the total equity, which includes revaluation surplus, is divided by the number of outstanding shares. This means that shareholders benefit from the increased value of assets recognized through revaluation.
