Asset Revaluation: Benefits, Journals, and Disadvantages

Talking about assets, perhaps what often comes to mind is valuable items owned by individuals or companies such as buildings, houses, or equipment.

Not just goods, assets are also often used for company financial calculations, for example in calculations leverage ratios. 

However, did you know that assets can also experience depreciation and revaluation? There is even a method to measure the revaluation, you know! This is called asset revaluation. 

For those of you who are not familiar with this term, there is no need to worry, because here you will find out the discussion of asset revaluation from its definition, formula, and also its shortcomings.

What is Asset Revaluation?

Asset revaluation is a revaluation of the fixed assets of a company due to an increase or decrease in the value of assets in the market, or also the value of assets is too low in the financial statements.

The purpose of this fixed asset revaluation is to update the value of long-term assets to match their market value and also make the company's finance department able to calculate and analyze earnings correctly. Asset revaluation will also relate to the material fixed assets and intangible fixed assets of a company.

The price of an asset can change depending on various factors such as inflation, low supply in the market, high or low demand, and also devaluation. What is devaluation? Government policy in lowering the value of a country's currency.

Fixed assets are also often referred to as fixed assets, namely assets of a company that are permanent in nature that are used to carry out company operations. Examples of fixed assets are buildings and vehicles.

Legal Basis Governing Asset Revaluation

Asset revaluation, of course, has been regulated by law (UU) Number 36 of 2008 regarding the fourth amendment to Law Number 7 of 1993 concerning income tax. In PPh Article 19 Paragraph Law 36/2008 contains:

1. The Minister of Finance has the authority to stipulate regulations regarding asset revaluation and adjustment factors in the event of a discrepancy between the elements of cost and income due to price developments.
2. For the difference in revaluation of assets as referred to in paragraph (1) a separate tax rate shall be applied in accordance with the Regulation of the Minister of Finance as long as it does not exceed the highest tax rate.

In addition, asset revaluation assessment is also stated in Minister of Finance Regulation 9 PMK) Number 191/PMK.10/2015 concerning revaluation of fixed assets for tax purposes for applications submitted in 2015 and 2016.

Through this regulation, the Directorate General of Taxes (DGT) will reduce the Article 19 income tax rate for companies that carry out asset revaluation.

What Assets Can Be Revalued?

Quoted from various sources, it turns out that not all company assets can be revalued or revalued. Only tangible fixed assets located in Indonesia can be revalued.

Examples of revaluation of fixed assets are property assets such as buildings because they are tangible and their existence can be known with certainty. This asset revaluation can also be carried out by all permanent business entities that already have domestic corporate tax obligations.

Asset Revaluation Benefits

This asset revaluation has benefits in the company's business as follows:

1. As a form of company wealth

The purpose of asset revaluation is to provide an assessment of the company's fixed assets, so these assets will be listed in the financial statements and if a company will make go public can be used to prepare asset reports with realistic prices.

2. As a capital controller

Asset revaluation can also reduce debt to equity ratio Dalam leverage ratio company. This is if the company is going to borrow capital at the bank, it will be processed easily, because if the capital increases capital adequacy ratio would follow.

3. Attract investors

With the revaluation of assets, the company's financial performance will also increase and can become points more to attract investors. You can start by launching company shares or bonds.

4. Reduce tax liability

The value of company assets that experience changes can also affect the depreciation value, if the depreciation value increases, the resulting profit will also decrease. So the tax liability will be reduced.

5. Helping companies to merge

Asset revaluation will be useful for companies that are going to merge, because these companies must reassess their fixed assets. So that at that time the real value of the asset can be known.

Example of Fixed Asset Revaluation Journal

Reserve for asset revaluation and above

Company A revalued the building assets and found the market value to be Rp600 million. The carrying amount on the balance sheet on June 1, 2022 is Rp. 400 million, meaning that the company has lost its asset value of Rp. 200 million.

Then the asset revaluation journal entry upwards:

The increase in the value of fixed assets will not be recorded in the income statement.

Reserve value revaluation down

Company  A revalued the building assets and found the market value to be Rp500 million. The carrying amount on the balance sheet as of June 1, 2022 is Rp350 million.

Downward revaluation journal entries:

When the price of a fixed asset decreases and the company does not have the same credit balance as the price decline. So that the decrease in asset value will be debited in the income statement for the difference in the amount of the revaluation reserve minus the decline in the market price of fixed assets.

Disadvantages of Asset Revaluation

In addition to having benefits, asset revaluation also has drawbacks that you need to know:

1. The amount of depreciation on asset revaluation often does not show an abstract or irregular pattern.
2. Companies will incur a lot of costs in revaluing assets, because asset revaluations must be carried out by professionals and maybe not all of the company's finances can do it.
3. Your company cannot revaluate assets every year, because sometimes the cost of fixed assets does not decrease.

Well, that's the discussion about asset revaluation which is a revaluation of a company's fixed assets. To do a revaluation you must always confirm and check the current market value.