Revaluation

A revaluation is the act of recognising a reassessment of values of non-current assets at a particular date.

Revaluations must be carried out with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.

A revaluation carried out without sighting the assets being revalued is known as a desktop revaluation.

A revaluation will typically consider the following values.

Replacement Costs are adjusted to reflect the current costs of purchasing and/or constructing assets.
Written Down Replacement Costs are adjusted to reflect the new replacement costs and the condition of existing assets.

The Accounting Standard most pertinent to revaluation is AASB 1041 - Revaluation of Non-Current Assets

### Victorian Auditor-General's Office

The Victorian Auditor-General's Office defines 'revaluation' as; the restatement of a value of non-current assets at a particular time.4

There are at least two schools of thought about how to adjust an asset's Written Down Value in the case where its condition score hasn't changed since it was most recently revalued.

#### Method 1

Method (1) is to reset the WDRC of the asset to a value corresponding to a particular percentage of its Replacement Cost. The percentage would be taken from a table similar to the one below.

Condition Percentage of RV
0 100%
1 80%
2 60%
3 40%
4 20%
5 0%

e.g. If the RC = \$1,000 and the condition score = 2 the WDV should be set to \$600.

#### Method 2

Method (2) is to adjust the WDRC by the same percentage as the RC was adjusted.

e.g. If an asset has a pre-revaluation RC of \$1,000 a pre-revaluation WDRC of \$500, a post-revaluation RC of \$1,100 the post-revaluation WDRC will be equal to 1100 * 500 / 1000 = \$550.00.

If the calculated WDRC falls below the range associated with its condition score (see table below), either its WDRC may need to be adjusted up, or its condition score amended.

Condition Percentage of RV Range
0 80% - 100%
1 60% - 80%
2 40% - 60%
3 20% - 40%
4 0% -20%

#### Pros & Cons

##### Method (1)
• Marginally Simpler
• At least one valuer has opined that it is the only acceptable method under the accounting regs.
• The WDV of a typical asset increases slowly and then drops sharply when its condition finally changes. The resulting Graph of WDV over time would seem to poorly represent how the asset would actually be consumed. ##### Method (2)
• The Graph of WDV over time appears to better approximate the way a typical asset's condition would actually change. 