Fixed Assets Valuation - How should Fixed Assets be Valued?

Fixed assets are valued at cost less depreciation. One of the main reasons for providing depreciation is to provide for the replacement of the asset in due time. Assets are not shown at cost only if its obsolete or the entity is about to be wound up.

Replacement cost don't show the actual value of asset at hand on a particular date so historical value is the best way to value an asset. You should also refer to accounting standard 10. You can refer AS 10 - Accounting for Fixed Assets, it gives valuation of Fixed Assets under different circumstances.

The best solution to the paradox of objective valuation and creation of fund for replacement may be this;1. Revalue the assets and carry the value in revaluation reserve.2. The depreciation on the higher value ensures adequate build up of funds for the replacement of assets and also prevents the distribution of anticipated profits if the excess depn is not set off against the revaluation reserve.

Depreciation is being provided to the fixed assets since the value of the assets will go down year by year. So the fixed assets value should be taken after the depreciated value.

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