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Assets Re-evaluation and impairment Shows the Real Value of Assets
it is already the more Reliable Value than Historical Cost
When Selling or Buying new Entities or Firms they Use Fair or Market value
Benefits of Assets evaluation are:
· To show the true rate of return on capital employed.
· To conserve adequate funds in the business for replacement of fixed assets at the end of their useful lives. Provision for depreciation based on historic cost will show inflated profits and lead to payment of excessive dividends.
· To show the fair market value of assets which have considerably appreciated since their purchase such as land and buildings.
· To negotiate fair price for the assets of the company before merger with or acquisition by another company.
· To enable proper internal reconstruction, and external reconstruction.
· To issue shares to existing shareholders (rights issue or follow-on offering).
· To get fair market value of assets, in case of sale and leaseback transaction.
· When the company intends to take a loan from banks/financial institutions by mortgaging its fixed assets. Proper revaluation of assets would enable the company to get a higher amount of loan.
· Sale of an individual asset or group of assets.
· In financial firms revaluation reserves are required for regulatory reasons. They are included when calculating a firm's funds to give a fairer view of resources. Only a portion of the firm's total funds (usually about 20%) can be loaned or in the hands of any one counterparty at any one time (large exposures restrictions).
· To decrease the leverage ratio (the ratio of debt to equity).
Asset Revaluation.
Todays a World - A Global Village - A Binocular Area
Every thing based on Market Value- in few hours Market Value Ups & Downs.
Every business based on its Market Worth.
A Company Worth on its Asset against Liabilities & Equity.
I agree with Professor / mohamed Hakim
Many Thanks for invitation