Limited Company Accounting

Revaluation of Non-Current Assets

Why Revalue?

Assets (especially land and buildings) may increase in value over time. Revaluing them shows a more accurate picture of the company's net assets on the statement of financial position.

Double Entry for Revaluation

When a non-current asset is revalued upwards:

The revaluation reserve appears in the equity section of the statement of financial position. It is a capital reserve — it cannot be distributed as a dividend.

Effect in the Schedule of Non-Current Assets

• Cost section — add the revaluation increase to the opening cost
• Depreciation section — eliminate the accumulated depreciation (debit the depreciation account, reducing it to zero)
• After revaluation, future depreciation is calculated on the new carrying amount over the remaining useful life

Example

Land originally cost £500 000 and had accumulated depreciation of £150 000 (NBV £350 000). It is revalued to £600 000.

• Cost: increases from £500 000 to £600 000 (Dr £100 000 added in Cost section, then £150 000 reclassification so effective cost entry = +£250 000 to get from £500 000 to £800 000... )

Simpler to think of it as:

• Old NBV = £350 000; new value = £600 000; revaluation gain = £250 000
• In the schedule: Cost row adds +£250 000 (revaluation); Depreciation row shows −£150 000 (eliminated on revaluation)
• Revaluation reserve increases by £250 000 (the gain on revaluation)
• New depreciation based on £600 000 ÷ remaining life

The revaluation reserve is only realised when the asset is sold. Until then, it cannot be distributed to shareholders.