revaluation provision

revaluation provision

an accounting PROVISION made for the increased cost of replacing a FIXED ASSET, over and above its HISTORIC COST DEPRECIATION charges spread the original cost of a fixed asset over its estimated life, preventing the cost of the asset from being ignored in calculating net profit and so preventing the firm's LONG-TERM CAPITAL EMPLOYED from being distributed as DIVIDENDS. However, where the REPLACEMENT COST of a fixed asset is expected to exceed its original cost, a prudent firm may withhold additional profits instead of distributing them, in anticipation of having to pay this additional sum. See INFLATION ACCOUNTING.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson