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If you disclose the wrong value for an asset on your financial statement, it could lead to massive penalties from SARS. Here's how to avoid this

by , 05 January 2015
If you don't know how to determine the value of your assets, you could put incorrect values on your financial statements. This will mislead investors and shareholders.

But not just that, if SARS audits you, checks your assets, and spots the mistake, it will penalise you.

This will scare off all those investors and shareholders with the fear of what else you've lied about.

But there's an easy way to avoid this problem.

Here's how...


Here's how to avoid putting the wrong asset value on your financial statement

The best way to avoid this problem is to revaluate your assets regularly. If you have a policy of revaluing assets, you should do this often. This way you always know what the current value of the asset is. 
You need to disclose the carrying value of fixed assets on your financial statements. This is the value of your asset minus all the depreciation. You then revalue it to its current market value. 
Compare the carrying value to the market value. The carrying value will decrease or increase based on the current market value. 
By revaluing the asset, you won't over or understate the value of your assets. This means your financial statement will be 100% accurate. 
Over- or understating a value on your financial statement means you give a false impression about the health of the business.  
And as I mentioned before, if SARS and your investors find out, it will cause serious trouble for you. 
The good news is revaluing your assets is easy. 
Here's how to do it in six easy steps.
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Follow these six easy steps to revalue your asset

Step #1: Decide what model to use for the fixed assets in your company
You can use the cost model or the revaluation model.
Step #2: Appoint an independent valuator to do a valuation 
This will give you the current market values of the fixed assets
But don't appoint a person who has an interest in your company or a family member. Appointing somebody closely related could mean the value of the fixed asset won't be right. This is because the person may not be objective.
Step #3: Find out if you need to do upward or downward revaluation 
Use the information in step #1 and step #2 to find out if you need to raise the value of the asset or if you need to reduce it.
Step #4: Find out if you need to revaluate the carrying value of the fixed asset
Don't just do this calculation once for all your assets. Make sure you do this calculation individually for each asset. Each fixed asset has its own value in the market. You can't afford to misstate the value of your assets.
*********** Hot off the press  ************
Proposed new standards in lease accounting 
Leases fall into two categories:
Finance or capital leases, where the lessee enjoys all the risks and rewards that the owner of the asset enjoys. At the end of the lease, the asset will be nearly worthless. The lessor will anticipate this and will charge the lessee rent that will recover all of the lease's costs, with a profit built in.
Step #5: Find out by how much you'll need to move the value up or down 
Make sure you adjust the value accurately so you don't over or understate it.
Step #6: Determine the journal entry that should be part of this revaluation 
If there's upward revaluation you credited it as revaluation surplus.
Following these six steps will help you make sure all the values on your financial statement are correct. 
For more information on how to do assets revaluation, check out the Practical Accountancy Loose Leaf Service

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