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# Revaluation Method of Depreciation:

## Definition and Explanation:

Under revaluation method of depreciation, the assets are revalued each year. The method is normally adapted to charge depreciation on numerous inexpensive fixed assets like small tools, live stock, patents, copy rights and other assets of such nature which are constantly changing and their period of life is most uncertain. Accordingly periodic inventory is taken of usable items and valued at cost irrespective of ruling prices. Excess of the opening over the closing inventory thus gives the periodic depreciation expenses.

To understand the depreciation charge under revaluation method consider the following example.

## Example:

For example, if the value of tools at the beginning of the year was \$8,000, during the year tools worth \$6,000 were purchased more and when at the end revaluation was undertaken it amounted to \$ 11,000. The amount of depreciation for the year shall be as under:

 (\$8,000 + \$6,000) - \$11,000 =\$14,000 - \$11,000 = \$3,000

## Merits of Revaluation Method:

This method is very simple and the amount of loss can be ascertained very easily.

## Demerits:

1. As every year revaluation is desired it presents various problems.
2. Amount of depreciation is always unequal.
3. The valuation of asset is very time consuming.

## More study material from this topic: Definition, explanation and causes of depreciation Depreciation is not a matter of valuation but a means of cost allocation Activity method of depreciation Straight line method of depreciation Sum of the years' digits method of depreciation Reducing balance method Annuity method Depreciation fund method or sinking fund method Insurance policy method Revaluation method Depletion method Machine hour rate, mileage, and global method Methods of recording depreciation Reserves Difference between general reserve and specific reserve Difference between capital reserve and general reserve Difference between reserve and reserve fund Difference between provision and reserve

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