Revaluation

What Is a Revaluation?

Revaluation has two main meanings in finance. The older meaning describes a deliberate, official increase in the value of a country's currency relative to other currencies. The second describes an accounting adjustment that raises the recorded value of an asset to reflect a higher current value. Both involve moving a value upward from its previously stated level, but they arise in very different settings.

Currency Revaluation

Currency revaluation happens under a fixed exchange rate system, where a government or central bank sets its currency's value against a reference currency, a basket of currencies, or gold. When the authorities decide the currency should be worth more, they announce a new, higher official rate. Each unit of the currency then buys more foreign money than before. This is the opposite of a devaluation, which lowers the official rate. Under a floating exchange rate, currency values change continuously through market trading, so the formal term is rarely used.

Revaluations are usually made to ease inflationary pressure, reduce trade imbalances, or respond to strong demand for the currency. Their effects can be significant. Imports become cheaper, exports can become more expensive for foreign buyers, and holders of foreign-currency assets may see their local-currency value change.

Asset Revaluation in Accounting

In accounting, revaluation means restating an asset's value on the balance sheet to a current amount, such as fair value, rather than keeping it at original cost. Some accounting frameworks allow companies to revalue certain assets, such as property, plant, and equipment. Others require these assets to remain at historical cost less depreciation. Where revaluation is permitted, increases are often recorded in equity as a revaluation surplus rather than as profit.

Why It Matters to Investors

For investors, a revaluation can change reported figures without any change in business operations. A higher asset value can increase book value and total equity, which affects ratios that rely on balance sheet figures. Currency revaluations can also affect multinational companies' reported results, since foreign-currency revenues and debts translate into a different amount of home currency. The notes to a company's financial statements typically explain whether a revaluation reflects market conditions or a one-time accounting change.