Question

Why might a company choose not to use revaluation accounting?

Short answer

Answer

The expense involved in revaluing a fixed asset is the primary reason why companies do not use revaluation accounting.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Revaluation

Revaluation funds are set up on the balance sheet to preserve a contingency account linked to other assets. Upon re-evaluation, if the carrying value of the asset changes, a line item will be created.

Explaining the reason for a company not to choose revaluation accounting.

There are considerable and ongoing expenditures associated with assessments to determine fair value. This is the primary reason why most organizations do not utilize revaluation accounting.

Net income is also affected by the losses associated with revaluation below historical cost. Depreciation increases and results in higher expenses and reduced income when revaluation increases.