Cambrige Notes: Principles of Accounting: The Revaluation Method

• When there are a few big fixed assets it is easy to:
  1. Ascertain the cost
  2. Estimate its useful life
  3. Calculate/estimate its depreciation
  4. Account for its disposal
  5. Calculate/estimate profit or loss on disposal
• For each asset because it is worth the effort
• There are times when this cannot be done mainly because
• It would be too expensive to track and account for the depreciation of each asset
• It might even be impossible to do this in some instances for some fixed assets
• A typical example is that of low cost fixed assets which are often bought in large numbers
• For example screw drivers and spanners in a garage or guns in an army
• It would be possible to calculate the depreciation of each screw driver, gun or spanner
• But it would not be worth it, in fact it is quite possible the cost of doing so would exceed the cost of each asset
• In such cases depreciation is calculated using the revaluation method
• The value of all the individual assets is added up
• The cost of additional fixed assets is added to this amount
• Then the value of the assets at the end of the period is subtracted
• The resulting figure would yield the depreciation for the year

• The depreciation figure is then charged into the books
• Double entry for the revaluation method would be as follows:

• Examples of the method will be encountered during the discussion of manufacturing businesses where they will be dealt with

To access more topics go to the Principles of Accounting Notes.