Revaluation Method of Depreciation

12/08/2008 21:07

 

Revaluation Method of Depreciation:

Learning Objectives:

  1. Define and explain the revaluation method of depreciation.

  2. When and where this method is used?

As the name implies under revaluation method, the assets are valued at the end of each period so that the difference between the old value and the new value, which represents the actual depreciation can be charged against the profit and loss account. This method is mostly used in case of assets like bottles, horses, packages, loose tools, casks etc. On rare occasions when on revaluation the value of an asset is found to have increased, it being of temporary nature not taken into account.

Revaluation method is open to various objections.

Firstly, the method do not specify as to which is the value that the experts are to estimate at the end of each year. It however appears that this is the market value. If so, to assess depreciation with reference to market value is against the basic principles and theory of depreciation. A fixed asset has nothing to do with market value.

Secondly, the charge against profit and loss account on account of depreciation will vary year to year through the asset renders the same service throughout of its life time.

Thirdly, this method is unscientific, because there are great chance of manipulations.