Financial Accounting Process docx.

FINANCIAL ACCOUNTING PROCESS 1
FINANCIAL
ACCOUNTING
PROCESS

FINANCIAL ACCOUNTING PROCESS 2
Issue 1:
The concept of revaluation is mainly used in accounting and it helps in the determination of
true and the fair market value of the fixed asset. As and when there is a revaluation of a fixed
asset, then the value of the asset shall be adjusted or is amended to the market value of that
asset. The reason as to why revaluation is done is the fact that the market value of the fixed
asset shall change over the period of time and would be less or more than the historical value
recorded in the books of accounts. Revaluation of mainly done so as to record accurate
information in the books of accounts. Also, the funds under revaluation are kept aside to
negotiate the prices in case of a merger or an acquisition or for the purposes of taking loans in
the mortgage of the fixed assets.
Impairment on the other side, the value of a fixed asset may be less or more than the actual or
the market value of an asset. Hence, the accurate and the true value of the fixed asset must be
recorded in the books of accounts. When an asset loses its value over the period of time, then
that asset is termed as an impaired asset.
An asset could become impaired due to a variety of different reasons which may include
becoming obsolete, failure to meet the regulatory requirements, damage to the asset etc. any
company is duty bound to check each asset for impairment on a yearly basis and record the
difference between the amounts as and when they occur.
Hence, in order to conclude the fixed assets are reported in the books of accounts at their cost
prices and then these values change to show their true and fair market value. There are two
method to do the same, the first one is revaluation and the other one is impairment (Nicolae,
2020).
The technique of revaluation is used in accounting and finance wherein the recorded value of
an asset shall be reported at its market value. An asset shall lose its value and would be
required to be written down which is termed as an impaired asset.
AASB 116 describes the reduction in the carrying value of a non-current asset t its fair value
which is termed as a “revaluation decrement”. The same accounting standard describes an
impairment loss as a reduction in the amount of the carrying value to report its recoverable