Many benefits are there in conducting asset revaluation,
Showing a Reasonable Wealth Position
The major purpose of asset revaluation is to provide a true value to the company’s assets. Thus, the value of assets recorded in the financial statements will represent a fair value.
Asset revaluation will also be very important for companies that have Initial Public Offering (IPO) because the company can use it to compile asset values at prices that tend to be more realistic.
Fixed asset revaluation is also useful for reducing the company’s debt to equity ratio. So, if the company wants to borrow debt from the bank, the bank can provide debt loans easily.
This is because the amount of company capital has increased, so the capital adequacy ratio also increases. Thus, the bank can provide loans to companies and other customers.
In this case, it means that the bank will also benefit from the company. For this reason, asset revaluation is also very useful for controlling your company’s capital.
Another benefit of asset revaluation is the increase in the company’s financial performance. So, this can be used to attract investors. You can start by issuing bonds or offering company shares.
By doing calculations based on the company’s debt to assets ratio and debt to equity ratio, the creditors will give their trust to participate in investing their capital in your company.
Reducing Tax Liability
Over time, the value of the company’s assets that were previously low will certainly continue to increase. When the value of these assets increases, it will affect the company’s depreciation costs. Because depreciation costs will increase and will have an impact on financial statements. Thus, the profit generated will decrease so that the burden of tax obligations applicable in that year will also decrease.
Helping Companies Planning to Merge
This asset revaluation will also help companies that want to merge with other companies. This is because companies that plan to merge must of course have to reassess each of their fixed assets. Thus, the true value of the asset will be known.
Asset Revaluation Function
The functions of asset revaluation activities are as follows:
- To prepare the sale of fixed assets to other parties.
- To negotiate on the fair value of fixed assets before the company is acquired or merged with another company.
- To be able to update the market value of a fixed asset which has continued to increase since its initial purchase.
- To ensure that the company has sufficient funds to replace fixed assets at the end of its economic life.
In addition to the points above, you must also understand that asset revaluation activity is a difficult activity to do, the costs you have to spend are large because you have to pay for the services of a fixed asset valuation service provider, however, this is not true in the case of CAC as the firm provides one of the best services and that too at a reasonable charge.
If you can manage your business properly and correctly, then the financial performance of your company and the value of your company will also increase automatically.