Revaluation Account vs. Realisation Account: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Published on December 23, 2023
A revaluation account assesses and records changes in asset values; a realisation account tracks asset liquidation and associated gains/losses during dissolution.
Key Differences
The revaluation account is used for recording increases or decreases in the value of assets. The realisation account is created during the dissolution of a business to reflect the process of converting assets into cash.
Revaluation can occur at any time to reflect current asset values. Realisation occurs specifically when a business is being wound up or dissolved.
Revaluation affects the balance sheet by altering asset values. Realisation affects the profit and loss statement by showing gains or losses from asset liquidation.
Revaluation involves adjusting book values of assets. Realisation involves actual transactions of selling assets.
The outcome of revaluation is adjusted asset values on the balance sheet. Realisation results in the actual liquidation value of assets during closure.
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Comparison Chart
Purpose
Record value changes of assets
Track asset liquidation in dissolution
Timing
Can occur any time
Occurs during dissolution
Financial Impact
Affects balance sheet
Affects profit and loss statement
Transactions
Involves asset value adjustments
Involves selling of assets
Outcome
Adjusted asset values
Liquidation value of assets
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Revaluation Account and Realisation Account Definitions
Revaluation Account
Used to align asset values with current market conditions.
The revaluation account was adjusted to reflect the current market price of investments.
Realisation Account
An account used during the winding up of a business to record the conversion of assets into cash.
The realisation account showed proceeds from the sale of company assets.
Revaluation Account
Can lead to an increase or decrease in the company's net worth.
The land revaluation resulted in an increased net worth in the revaluation account.
Realisation Account
Used to settle accounts payable and other obligations in the dissolution process.
The realisation account was utilized to pay off creditors as the business closed.
Revaluation Account
Aids in providing a true and fair view of the company's financial position.
The revaluation account helped in presenting a realistic financial picture in the annual report.
Realisation Account
Final step in accounting before a business ceases to exist.
The realisation account was the last to be closed before the company was officially dissolved.
Revaluation Account
Reflects adjustments to asset book values on the balance sheet.
Following the revaluation, the machinery's value in the revaluation account was higher.
Realisation Account
Ensures all transactions related to asset disposal are recorded systematically.
Every sale during the liquidation was recorded in the realisation account.
Revaluation Account
An account used to record increases or decreases in the value of existing assets.
The company's revaluation account showed an increase in property value due to market conditions.
Realisation Account
Reflects the gains or losses from liquidating assets.
The realisation account indicated a loss on the sale of outdated equipment.
FAQs
What is a realisation account?
It's an account used to record the process of converting assets into cash during business dissolution.
When is a revaluation account used?
Whenever there is a need to adjust asset values to reflect current market conditions.
How does revaluation affect the balance sheet?
It changes the asset values, impacting the company's net worth.
When is a realisation account used?
During the winding up or dissolution of a business.
Does realisation always result in profit?
No, it can show a profit or loss depending on the sale proceeds versus book values.
Is revaluation a mandatory process?
Not always; it depends on the company's policy and accounting standards.
What is a revaluation account?
It's an account for recording changes in the value of a company's assets.
What does the realisation account show?
It shows gains or losses from selling assets and settling liabilities.
Does revaluation affect company operations?
Not directly, as it's more about financial reporting.
Can revaluation impact tax liabilities?
Yes, increased asset values can affect depreciation and tax calculations.
Who handles the realisation account?
Typically, a liquidator or someone responsible for overseeing the dissolution process.
What happens to the realisation account after dissolution?
It's closed once all assets are liquidated and liabilities settled.
Can revaluation lead to increased profits?
Indirectly, by increasing asset values, it can enhance net worth but doesn't impact profit directly.
What happens after realisation is complete?
The business pays off liabilities and distributes any remaining funds to owners or shareholders.
Is the realisation account part of regular accounting?
No, it's specific to the dissolution process of a business.
Who decides on asset revaluation?
Company management, often based on appraisals by external experts.
Can a realisation account exist in a solvent company?
No, it's specifically for companies in the process of winding up.
Are revaluation reserves distributable?
Generally, they are not distributed as cash but reflect in the company's equity.
What's the main difference between these accounts?
Revaluation account adjusts asset values, while realisation account deals with asset liquidation during dissolution.
What types of assets are revalued?
Fixed assets like property, plant, and equipment are commonly revalued.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
