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Explain revaluation method of depreciation.
Revaluation method of depreciation is the easiest method of depreciation. In this method, the asset value is assessed at the staring of the year and at the end of the year and difference between them is considered as depreciation to be charged. Revaluation method of depreciation will be done on fixed assets. Revaluation can be done by external party (professional) or internally.
Depreciation expenses = (AV)sy + A – D – (AV)ey
(AV)sy = asset value at the start of the year
A = any additions during the year
D = any deductions during the year
(AV)ey = Asset value at the end of the year
Revaluation method of depreciation is applied to the following −
- When accurate life of an asset is unknown.
- When life of an asset is uncertain.
- When other depreciation methods can’t be used.
Advantages of revaluation method of depreciation are −
- Easy to understand.
- Used business having small assets.
- Can be applied to different assets.
Disadvantages of revaluation method of depreciation are −
- Difficult to calculate depreciation charges, if the asset value remains same.
- Difficult to find pattern of asset.
- External parties charge more money.
- Miscalculation of depreciation amount, if the asset is not revalued properly (that means instead of one area if we calculate another area)
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