In finance, a revaluation of fixed assets is an action that may be required to accurately describe the true value of the capital goods a business owns.
The purpose of a revaluation is to bring into the books the fair market value of fixed assets.
Under this method, technical experts are called in to carry out a detailed examination of the assets with a view to determining their fair market value.
A proper appraisal is necessary when the company is taking out an insurance policy for the protection of its fixed assets.
It seems the concept of upward revaluation of fixed assets such as real estate has not been widely welcomed by a majority of companies in USA on account of fear of paying higher property and capital gains taxes.
Similarly, the law prohibits payment of dividend out of any reserve created as a result of the upward revaluation of fixed assets.
The law in Australia has been amended recently to allow for the payment of dividends from the increase in the value of non-current assets in certain instances where a company meets other liquidity tests (see section 254T of the Corporations Act 2001 (Cth)).
However, any downward revision in the book values of the assets is immediately written off to the Profit and Loss account.