Revaluation of assets is an important element of financial accounting internationally. The International Financial Standards IFRS recognize this process as an important input in ensuring more accurate and fair financial reporting which can be comparable across the world. Notably, revaluations involve estimation of current values of assets taking to full consideration a myriad of factors which could alter the true value of the asset.
Considerations in revaluation of assets include the expected lifetime of the asset, its ability to produce based on the demand of the products resulting, the purchase price, the scale of wear and tear and any other factors which may be specific to the asset in question. This being the case, the revaluation deviates from the existing book value to the extent to which these factors affect the true value of the asset.
Investors are interested with accurate and updated information reflecting the most truthful and fair values. This is because, they base their decisions on these information. The process of economic decision making is basically a comparison of the expected benefits and costs to be incurred. If the information on either the benefits or the costs is not accurate then flawed decisions are likely to be made resulting in huge losses.
Therefore revaluations are very useful to investors as they ensure that the values of earnings and book values are as accurate as possible thus informing their decisions productively. This means that fewer losses are likely to emerge from their decisions.
They are likely to match the scale of investments to a more accurately determined stream of incomes as a result of revaluations. Credibility to the disclosure of can be enhanced by management mainly by ensuring that all the information required for revaluation is availed accurately.
Private to Public Company
A shift from private ownership to public ownership is an intricate process which involves significant costs mainly in communicating to investors who are supposed to invest in the shares. Despite these additional costs, organizations still opt to go public. This is due to the many benefits which accrue for a public company as opposed to a private company.
First, the process of communicating to investors generates valuable visibility and publicity for the company among not only investors but also the general public who comprise the customers. This improves that company’s ability to attract more customers in the future hence generating better returns. Secondly, going public normally involves the injection of more capital from the previously unavailable public.
This extra capital can be used to expand the company’s operations which are likely to lead to much bigger profits in the future. In addition to this, finance institutions and other investors are generally known to have more confidence with listed companies mainly due to the fact that these companies are supposed to fulfill more strict conditions set by the regulating authorities who ensure financial soundness and better financial management.
This means that the public company has better access to credit for business expansion thus prospects of better returns (Ingersoll & Rooney, 1998, par3).
Also, public companies are better known to attract and retain better employees a fact which is likely to lead to better productivity. These benefits of going public far outstrip the additional costs incurred in conducting the process (Benefits of a Public Company, 2010, par3).
It is also worth noting that in many initial public offerings, the shares may be issued at a premium which is supposed to cater for the cost of executing the transaction including the communication costs. Again, the costs only occur once but most of the benefits are in the form of streams.
Reference List
Benefits of a Public Company. (2010). Web.
Ingersoll, B. & Rooney P. (1998). The Major Benefits And Burdens Of Going Public. Web.