Revaluations and Impairment Testing of Non-Current Assets

Running head: COMPANY ACCOUNTING
Company Accounting
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COMPANY ACCOUNTING
Table of Contents
Part A: Revaluations and impairment testing of non-current assets................................................2
Question 1:...................................................................................................................................2
Question 2:...................................................................................................................................2
Question 3:...................................................................................................................................3
Requirement (a):......................................................................................................................3
Requirement (b):......................................................................................................................4
Requirement (c):......................................................................................................................5
Requirement (d):......................................................................................................................6
References:......................................................................................................................................8
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COMPANY ACCOUNTING
Part A: Revaluations and impairment testing of non-current assets
Question 1:
Based on the provided information, it could be seen that one board director of Simba
Limited has proposed the introduction of revaluation model for non-current assets. However, it is
noteworthy to mention that before the acceptance of such proposal, the benefits and drawbacks
of the same need to be considered.
The primary reason behind the use of revaluation model is to determine the actual asset
values. By implementing this model, the organisations could obtain fair market prices of non-
current assets after significant appreciation since the acquired or purchase price. Such accurate
revaluation helps the organisations in obtaining greater loan amounts1. Along with this, it
becomes easy for the organisations in negotiating the prices of the non-current assets during
mergers and acquisitions when they have complete understanding of the fair values. Moreover,
revaluation model needs manual re-evaluation of the fixed asset values in every period and it
does not need the projection of the economic life and residual amount for computation of
depreciation2. This minimises the overall burden related to depreciation computation from the
organisations. However, one drawback is that it minimises net income, if there is fall in fair
values of non-current assets3.
Based on the above discussion, Simba Limited could be benefitted in a number of aspects
from the implementation of revaluation model with little drawbacks, which could be mitigated
by implementing suitable techniques. Therefore, the board needs to accept the proposal of the
director by adopting revaluation model for non-current assets to obtain more accurate values.
1 Asif, Chaudhry, Interpretation And Applications Of International Financial Reporting Standards (Wiley, 2016)
2 Carl S, Warren, Reeve James M. and Jonathan Duchac, Corporate Financial Accounting(South-Western Cengage
Learning, 2014)
3 Tadeusz, Dudycz and Jadwiga Praanikkw, "Does The Mark-To-Model Fair Value Measure Make Assets
Impairment Noisy?" [2018] SSRN Electronic Journal
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