Asset values in Sage (etc)
Discussion
If the asset was treated as simple expenditure at the time it was purchased, then it would have been written off as a business cost in that financial year. Therefore it would have appeared in that year's Profit and Loss and would not appear in the Balance Sheet. Therefore, as far as the accounts are concerned, the asset no longer exists.
If this was the way the purchase of the asset was originally treated, then it cannot be "revalued" in the normal sense as there is no original value still existing in the current accounts to which a revaluation can be applied.
Purchases of Fixed Assets are usually NOT written off as normal expenditure in the year in which they are purchased. The expenditure is normally posted to a Fixed Asset heading in the business Balance Sheet. This would have been the expected style of posting. If the asset purchase WAS treated this way, then the original cost of the asset should appear each year as a brought forward value in the business' Balance Sheet each year.
In this case, an adjustment to reflect the revised value of the Asset is possible. This would be done by means of a Journal Entry.
What you wish to do is increase the value to an amount that you feel reflects the true current value of the asset. To do this, you need to work out the current value and subtract the value of the asset as it stands in the balance sheet from the new, presumably higher, value. The difference is the "Revaluation Adjustment".
The Journal is:
Debit Fixed Asset - with the revaluation adjustment
Credit Revaluation Reserve - with the revaluation adjustment
The Revaluation Reserve is positioned in the same general area as the Capital Account(s), Brought Forward Profits and Reserves etc.
If at any future point the asset needs to be adjusted again (but excluding normal Depreciation charges), the adjustment needs to be mnade against this revaluation reserve.
If your business is a Limited Company, there will be some additional disclosure requirements in the next set of statutory accounts explaining the basis as to why the assets needed to be revalued and the logic behind the valuation chosen (plus who actually carried out the revaluation).
Depending on the type of Asset involved, you will need to be aware of the Capital Allowance (and possible Capital Gains Tax) implications of Fixed Asset revaluations.
If this was the way the purchase of the asset was originally treated, then it cannot be "revalued" in the normal sense as there is no original value still existing in the current accounts to which a revaluation can be applied.
Purchases of Fixed Assets are usually NOT written off as normal expenditure in the year in which they are purchased. The expenditure is normally posted to a Fixed Asset heading in the business Balance Sheet. This would have been the expected style of posting. If the asset purchase WAS treated this way, then the original cost of the asset should appear each year as a brought forward value in the business' Balance Sheet each year.
In this case, an adjustment to reflect the revised value of the Asset is possible. This would be done by means of a Journal Entry.
What you wish to do is increase the value to an amount that you feel reflects the true current value of the asset. To do this, you need to work out the current value and subtract the value of the asset as it stands in the balance sheet from the new, presumably higher, value. The difference is the "Revaluation Adjustment".
The Journal is:
Debit Fixed Asset - with the revaluation adjustment
Credit Revaluation Reserve - with the revaluation adjustment
The Revaluation Reserve is positioned in the same general area as the Capital Account(s), Brought Forward Profits and Reserves etc.
If at any future point the asset needs to be adjusted again (but excluding normal Depreciation charges), the adjustment needs to be mnade against this revaluation reserve.
If your business is a Limited Company, there will be some additional disclosure requirements in the next set of statutory accounts explaining the basis as to why the assets needed to be revalued and the logic behind the valuation chosen (plus who actually carried out the revaluation).
Depending on the type of Asset involved, you will need to be aware of the Capital Allowance (and possible Capital Gains Tax) implications of Fixed Asset revaluations.
Eric Mc said:
If this was the way the purchase of the asset was originally treated, then it cannot be "revalued" in the normal sense as there is no original value still existing in the current accounts to which a revaluation can be applied.
I think this may have been the case. Is it possible to revert this, say in the next set of accounts? The assets have been "professionally" valued by someone frequently involved in the sale of such assets, but like most things I guess they are worth what someone is willing to pay!
Why were they written off in the year of purchase?
Was it OK for this to be done?
I presume the business claimed full tax relief on the cost of those assets on the profits that year.
Assets can be reintroduced into the accounts if necessary. However, if tax relief has been claimed in full on these assets, what is the point? The tax man may want to know why they were written off originally and could seek a claw back of some of the tax relief given at the time.
It sounds to me like they may have been incorrectly treated in the accounts.
Was it OK for this to be done?
I presume the business claimed full tax relief on the cost of those assets on the profits that year.
Assets can be reintroduced into the accounts if necessary. However, if tax relief has been claimed in full on these assets, what is the point? The tax man may want to know why they were written off originally and could seek a claw back of some of the tax relief given at the time.
It sounds to me like they may have been incorrectly treated in the accounts.
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