A type of reserve (a non-cash reserve) that is created by an entity to account for any increases in asset value- i.e., the fair value of assets (for a specific asset class). The increase in asset value cannot be taken to the statement of income, as by nature it is a form of equity. If after revaluation, the fair value of a given asset decreases, the fair value loss will be deducted from this reserve (it is also not taken to the statement of income).
This reserve is formed to reflect the true value of an asset at the market, taking into consideration the variation between its book value (carrying amount) and the market value (or fair value). Any increase in value will be credited to this account (increasing the reserve account) and any decrease in value will be debited to it (decreasing the reserve account). In accounting treatment, a revaluation reserve account is credited when the asset’s market value exceeds its book value and vice versa (when its market value is less than its book value, the account is debited).
Revaluation reserve is part of restricted equity which also includes share capital as well as the fair value reserve.
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