Discuss and answer the question regarding the case listed below in detail: Asset

Question

Discuss and answer the question regarding the case listed below in detail:

Asset Valuation

It is clear that asset valuation is critical for many enterprises. This is especially true for capital-intensive companies and how it is handled could mean the difference between having a profitable or unprofitable enterprise. Therefore, a question of importance is whether the valuation of long-term assets should stay the same or be changed periodically to reflect changes in the market value of the asset. What is your opinion? Discuss thoroughly.

Explanation / Answer

For those companies whose balance sheet items are mostly consists of large capitalized items such as property, plant and equipment, it is more important for company to accurately value those long term asset especially land and buildings that have been recorded at historical costs as per US GAAP are the costs to acquire lands and to build the buildings.

The value of those assets should appreciate over a period of time during good economic conditions as good investment for the shareholders and the company.

Long term assets such as land and buildings should be recorded at fair value as per IFRS Standards.

Change in fair market value of land and buildings more accurately reflect the replacement costs or current market value of these assets and it would also reflect decline in value of those assets if the market condition is not good.

The only concern is with change to reflect the changes in the market value of the assets and how often does the value of property gets appreciated and does change in appreciation value only occur when the financial statements of the company are required to get audited or reviewed.

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