Revaluation Method of Depreciation:
Learning Objectives:
-
Define and explain the
revaluation method of depreciation.
-
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.
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