VALUATION OF ASSETS

Basis of Valaation
The concept of value in economics is based on
future expectations. Under this concept the value
of an asset in equal to the present worth of future net
receipts that the asset is expected to produce during
its life. This concept is theoretically sound. But
as the future cannot be known with certainty, practi.
cal difficulties arise in the application of expectation
as the basis of valuation. Even economists do not
apply this method of valuation in the calculation
of national incomes. Nev, rth.. less in a rl:al situation,
assets are acqui. cd and dLp,)sed l,f with som._ approxi
mation to thi.s sort of subj_ctiv.: valuation. That
is, pays th: price of an asstt when one
that th' tvtal b 'n fit::; th.u wi:i b driv. d from it
Will not b . I S5 than th p.ic,. Th cost of an assd
may, th r,fur" b. clgard d as th,- 'b.st "vi
d:nc...' of its value. Cost is also d\.finite and readily
det...rminable. In accounting, cost is th..:r"fore consi
dered as in an objl:lctiw sense. Little objdction
can raised against such values at the time of
acquLition. If prices remained constant, existing
methods of valuation by matching historical cost
with revenues would not also create any major prob
lem in accounting bdCause, in such a situation, costs
(less depr.eciation where applicabk) would be meaning
ful approximations of values. (Diminution in value
of assets arising through abnormally high or
through normal obsolescence is usually by
increased charges against revenues). But prices are
subject to changes and, therefore, with the passage
of time the values of assets in use in current terms
may diffl:lr widely from historical costs. In a concern,
assets may be bought at different times and at diffl:lrent
prices and they are therefore not stated in like terms
in a conventional Balance Sheet. If they are valued
in current terms such values may differ in varying
degrees from their historical costs. During inflation,
the conventional Balance Sheet therefore loses much
of its significance and it can hardly be termed a state
ment of financial position. This happens in spite
of the fact that, in a going concern, most of the assets
are replaced and their values are restored to current
costs at different time intervals depending on the
nature of the assets.
In traditional accounting, assets are valued on an
historical cost basis for practical rather than theoreti
Jaly-September,I969
M. A. MONDAL,
M. Com. (Dacca)
M. Phil. (Southampton)
cal reasons. (The existing method is actually concerned
with amortisation of costs instead of valuation of
assets. Nevertheless, the monetary amount placed
against an asset is generally known as value). The
going concern assumption in accounting has to a
great e:xtent obviated the need for re-appraisal of
historical costs. On the other hand, departure from
historical costs raises the question of proper valuation
of assets. If it is supposed that assets can be revalued
with reasonable accuracy, accountants will still
hesitate to measure periodic profits on the basis of
annual appraisal of assets btcause of the realisation
principk. Incluskn of unn alitcd capital gains (or
losses) will not only raise the problt m of taxation
(who will pay tax. s on unCI alised profit 1) but will
mak ffi' aningCui anaiy b of th nature and Cl mposi
tion 0; p.1. fit mon difficult. Mort OVl:f, l vt:n assum
ing thlt valuation can bl: t:ffLct(d with reasonable
accuracy, it must, in most cases, be a matter ofopinion,
and thlflfor-.; periodical profits will be directly in
fluenc, d by such opinion.
"valaatioD of Assets
Although annual appraisal of values has not been
regard..d as an ace. ptable alternative to the historical
cost basis, assets are nevertheless revalued in many
cases and gains on revaluation are treated as capital
reserves instead of periodical profits. Generally,
only fix<.d assets are revalued. (Other assets, e.g.
inventories are usually revalued with a view to deter
mine periodical profits when market price is lower
than cost). The reason is obvious. During inflation,
historical costs of fixed assets depart more and more
from their current monetary values. But this is not
usually the case with inventories which are turned
over in a short time. It is also common to revalue
free-hold and leasehold land and buildings but not
plant and machinery. Land and buildings are re
placed much less frequently than plant and machinery
and in a period of continuin8 inflation, the value of
land and buildings in monetary terms will more
obviously become out of line with the corresponding
Balance Sheet figure. Revaluation is done mainly
for the purpose of showing the statement of position
in a more realistic manner and for effecting the
matching of costs on a current valllC basis. But
revaluation for the purwse of matching of current
costs with revenues suffers from some drawbacks.
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Firstly, revised values are subject to personal opinion
and therefore depreciation charges based on such
values are directly affected by such opinion. Secondly,
matching of costs through revaluation alone is
inadequate to deal with the problem of maintenance
of capital (real capital) during continuing inflation.
Finally, the historical cost basis is lost in the process
of revaluation and financial statements fail to disclose
the extent to which the revised value is affected by
personal opinion.
Revaluation will create little problem if the
matching aim of the same is changed. (This is not
necessary in cases where revaluation enters into the
normal accounting process, such as, in the case of
acquisition of a business). Matching of current
costs of assets may better be left for costing purposes.
In financial accounting, revaluation should be intended
to determine only realisable value gains (positive
or negative) and not for the matching of current costs,
and realisable gains should be insolated from costs
of assets so that the historical matching is not disturbed
and the extent of value revision which is subject to
opinion is clearly disclosed in accounts. Recording
of realisable gains in this manner will have the follow
ing advantages: First, the traditional historical
cost basis of account keeping will remain undisturbed.
Secondly, assets will be shown at their meaningful
values, disclosing at the same time how much of
such values is affected by personal opinion. The
last but the most important advantage is that it will
help measure real profits and maintain real value of
equity capital in accounting. For this, the loss (or
gain) of capital value may be calculated by mUltiplying
the opening balance of equity capital with the change
of price index during the period. The loss should be
treated as capital Reserve (forming part of capital)
and be adjusted against net accounting profits not
entirely at a time but only to the extent to which the
same is not covered by unrealised profits.
Suggested Methods of Valuation
For accounting purposes assets should be revalued
individually or in groups instead ofvaluing the concern
as a whole. However, the aggregate values of indivi
dual assets may not be the same as the value of the
whole concern because of its goodwill value.
Obviously goodwill is the excess of the value of the
concern over the piecemeal values of its individual
assets. If assets are valued individually as has been
suggested here, the figure attributable to goodwill
tends to be a matter of the opinion of those who will
use accounting data. The users of accounting in
formation, particularly those who will be interested
to know the amount of goodwill, will not necessarily
accept the accounting measurement of goodwitl ;
rather they will draw their own conclusion on the
basis of present position and futute prospects of the
concern. Of course, if information on goodwill is
8
C>....\.- - - - - - - - ~ - ~
considered desirable it may be given in the Annual
Report.
It has been mentioned earlier that the price (i.e.
cost) of an asset is the only objective evidence of its
value and, at the time of acquisition, the cost of an
asset can reasonably be regarded as its value. For
the same reason, i.e., to preserve objectivity, revalua
tion should also be based on current prices of similar
assets. But in the case of revaluation, current prices
may refer to both buying and selling prices. The
value of an asset based on the buying price may be
called replacement value (cost). Such value may be
different from the exchange or realisable value based
on the selling price. For accounting purposes,
revaluation of assets should mean the determination
of their worth to the concern. When the asset is
held for disposal, such as stock-in-trade, its worth
to the concern may be equal to the net realisa:ble
value. But in other cases, value should mean replace
ment cost, i.e., the current cost of acquising the services
of an asset if the concern did not possess the same.
The cost of an asset's potential services is, in fact,
a measure of minimum worth of that asset to the
concern. Therefore, except when the asset is awaiting
disposal, revaluation in accounting should mean the
determination of the cost of replacing the equivalent
services.
Apart from the fact that current value may imply
either the replacement or realisable value, the revalua
tion of existing assets of a concern may raise the
following problems. Firstly, an objective evidence
of value may not be readily available. Secondly,
difficulty may be experienced in the determination
of depreciation of the store of services of a fixed
asset and, thirdly, determination of the effect of tech
nological changes on the current value of the existing
asset may be subject to complications. Some reason
able methods should be followed consistently to tacle
these 'problems of revaluation. The first problem,
i.e., the. problem of objective evidence of value is
accentuated by price changes. The current market
pr ice of similar assets should be taken as the basis
of revaluation. For this reason, the specific price
index may be used so far as such an index is available.
Price indices of different classes of assets, such as
plant al)d machinery, equipment, construction cost,
Land etc., may be developed for accounting use.
In many cases, such as inventories, current market
price may be obtained without difficulty. Arrange.
ments can also be made for current quotations at the
end of each period direct from the market or the
sources of supply of the assets. The second problem,
i.e., the problem of determination of depreciation
arises from the fact that the value of usable services
in an existing asset is to be determined after deducting
the value of services already used from its total value.
It is true that ideally depreciation of an asset is a
reduction of its present value over a given time. In
Tbe Pakistan Aceowrtant
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other words,it is the difference between the capitalized
values at the beginning and at the end of the period.
But the capitalized value approach is not suitable for
accounting purposes because of the subjective nature
of calculation. On the contrary, the accounting
methods of depreciation may be regarded as the
objective approach to determination of value of
services used in so far as the methods applied is
realistic under the circumstances. For example,
if an asset provides equal services in ten years with
uniform expenditure on repairs and maintenance, its
original service value (i.e. original cost) may be ob
jectively reduced by one-tenth each year under the
straight-line method. In such a case the capitalized
value method will, of course, result in less deprecia
tion in the early years of the asset's life as compared
with the later years!. For this reason, the value of
an asset at any time will be higher under the capitalized
method than the value under a realistic accounting
method. This fact rather goes in favour of orthodox
accounting methods because of the preference for
conservatism in valuation for accounting purposes.
Therefore. a realistic accounting method under which
depreciation will approximately represent the reduc
tion of service value ofan asset under the circumstances
prevailing at the time of revaluation can be used to
ascertain the current value of the remaining services
of the assets. The third problem of valuation relates
to technological changes. Where technology is
changed, the value .of an asset in use can be determined
after making due allowance for the effect of the change
upon the existing asset. The technological changes
may be relevant in the revaluation of such assets as
plant, machines and equipment. Arrangement can
be made to obtain information on technological
development from the suppliers of and dealers in the
assets at closing dates. Such information can be
taken as the basis of valuation.
As a matter of fact, determination of values of
existing assets of a concern with absolute accuracy
is neither possible nor essential. In the revaluation
process, the problems are mainly related to the deter
mination of the replacement value (of fixed assets)
in which the continued existence of the concern which
is using the assets in implied. In a going concern,
inaccuracies in the valuation of fixed assets can be
adjusted subsequently as and when detected. More
over, as periodical profits will not be directly affected
by such valuation (as suggested earlier), the ex:istence
of unavoidabJe inaccuracies will not create much
problem. As such, the expensive method ofdetermin
ing exchange values (of fixed assets) can be avoided
in accounting except when the assets are to be disposed
of separately or collectively.
Some suggestions have been given below as to
methods that should be followed in the valuation
lReference: A. J. Merrett Be. Allen, Sykes "The Finance and
Analysis of Capitai Projects" (Longmans, 1962) pp. 486-88.
July-September, 1969
of different classes of assets.
should, of course, prescribe detailed methods of
valuation of various assets with a view to maintaining
uniformity and consistency.
(a) Inventories.
Inventories are acquired usually for the purpose
of sale with or without processing. Replacement
cost should be the basis of valuation of raw-materials
and other inventory stocks that have not passed
through further processing. Such valuation will
obviously indicate the cost that would have been
incurred if the inventory stocks were acquired on the
date of valuation. In case of stocks of partly pro
cessed goods, valuation should be made on the basis
of reproduction cost. Finished stock-s of a manu
facturing concern should be valued either on the basis
of net realisable value or at reproduction cost. The
method applied should of course, be followed con
sistently.
(b) Fixed Assets.
Unlike inventories, fixed assets of a concern are
meant for use rather than for sale. Therefore, it
should normally be presumed at the time of valuation
that the concern will exist to use the services of fixed
assets. Of course, there may be some abnormal
situation such as bankraptcy, under which fixed
assets are disposed of. But such abnormal situation,
unless known beforehand, need not be assumed in
accounting. If accounts reveal the normal situation,
one can make ones own assessment about the unknown
abnormal situation. Moreover, uncertainties as to
the future are usually provided for in accounts by
making provision. If desired, similar provision may
be made against unexpected disposal of assets.
It has been metioned that the current cost of a
new asset should be taken as the basis for determining
the value or worth of an e;x:isting similar asset to the
concern. For example, if the net services (i.e. the
service value net of repairs and maintenance cost)
of a machine costing Rs. 10,000/00 are equal over its
ten years'life and at the end of the first five years the
current cost of installing a similar new machine has
increased by 60 percent, the existing machine (with
no scrap value at the end of life) should be valued at
Rs. 8,000/000 (the cost of replacing half of the total
services of the machine) as shown below:
Cost of the machine in use Rs. 10,000/00
Less Depreciation (SjlOth) S,OOO/OO
Rs. 5,000/00
Add 60% increase in value (cost) 3,000/00
Current value of the machine in use Rs. 8,000/00
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Depreciation for the purpose of revaluation need
not necessarily be similar to book depreciation. The
method of depreciation should be reviewed at the
time of revaluation.
In many cases, the chllnge of price of an asset
may be partly or wholly the result of improved tech
nology. Because of better technology, the new
asset may have one or more advantages in respect of
productive capacity, per unit cost, type or quality of
products. Thus, in cases where the asset in use is
not exactly similar to the new one, at the time of
revaluation, due allowance for the expired life and
for the possible effects of technological changes on
the future use of the existing asset should be made.
The technological effect may be quantified on the
basis of available information. Allowance for tech
nological changes may then be made from the original
cost (less depreciation) in the ratio of cost disadvan
tages to current depreciation. Thus, if the price
of the above mentioned machine has increased by
60 percent due only to the two-fold rise in productive
capacity of the new machine, the periodic depreciation
(under straight line method) for the new machine
with double capacity will be Rs. 1,600 and, therefore,
for the equivalent of existing production (i.e. one-half)
will be Rs. 800 (as against Rs. 1,000). That is, 20
percent cost disadvantage to the existing machine
due to depreciation. The current value may, thus,
be calculated as follows:
Cost of tne machine in use Rs. 10,000
Less depreciation (SJIOth) 5,000
Rs. 5,000
Less Allowance for cost
20
disadvantage (Rs. 5,000 X -- 1,000
100
Current value of the machine in use 4,000
This method may be useful in cases where a number
of factors influence the value. of the asset in use, such
as cost advantages of the new asset, cost disadvantages
of the existing asset (due to fall in the quality of servi
ces) and rise or fall of price of existing products. In
such cases, the original cost (less depreciation) should
be adjusted in the ratio of net disadvantage (or ad
vantage) to current depreciation.
Due to technological changes, the existing asset
may also suffer from obsolescence. That is, the
asset may be required to be replaced earlier than the
end of its expected life or/and its service value may
reduce due to change of demand for the products.
[n such cases, the current value of the asset in use
should be reduced in proportfon to obsolescence.
For instance. if the review of the life of the existing
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machine (as stated above) in the fifth year reveals
that because of the technological improvements it
should also be replaced after another three years
instead of five years, its current value should be as
follows:
Current value of the machine in
(as shown above)
Less allowance for obsolesce
(2!Sths.)
use
Rs.
nce
4,000
1,600
Current value of the machine in use Rs. 2,400
If during the remaining life, the demand for the
products is expected to fall, the current value should
be reduced in proportion to the expected fall of pro
duction. If such estimates are not possible for the
whole of the remaining life, the current value may be
adjusted at the end of each year on the basis of yearly
reduction of production.
Valuation of fixed assets made by experts or for
the purpose of insurance may also be accepted for
accounting use if the same appears to have been made
on the basis of replacement cost instead of realisable
value. In some cases, such as loose tools, valuation
is made on the basis of their realisable values. Such
practice need not be changed as it is applied only in a
few special cases.
(c) Other Assets
Valuation of other assets, such as intangible
assets, securities, book-debts and receivables would
be easier than those of fixed assets. Therefore, prob
lems connected with these assets are not dealt with
in this article.
Periodic Adjustment
For the purpose. of end of period adjustments,
the difference between the current value of an asset
and its net book value at any closing date should be
treated as realisable gains (positive or negative) on
that date. Realisable gains should be shown in the
Balance Sheet as addition or deduction, as the case
may be, to the book value of the respective asset.
At the time of first revaluation, the total realisable
gains, and thereafter only the increase or decrease of
closing realisable gains over the opening balance of
such gains-should be adjusted in accounts. Ad
justment for the difference between the total realisable
gains and the unreal profit should also be made against
accounting profit to determine real profit of a period.
Developing Economy
In a developing economy like Pakistan, the pro
cedure of revaluation of assets should. in general be
(Contd. on page 14)
The Pakistan Accountant
I
TENTH INTERNATIONAL
CONGRESS OF ACCOUNTANTS
The Tenth International Congress of Accountants
will be held in Sydney, Australia, from Monday the
16th October to Friday the 20th October, 1972. The
members of the Australian Society of Accountants
and the Institute ofChartered Accountants in Australia
will play host. The Sydney Opera House will be used
as the Congress Centre and the plenary sessions will
be held there.
The technical programme which has been developed
will enable major problems of the profession to be
discussed in depth. The theme selected for these
sessions is FINANCIAL MEASUREMENT AND
COMMUNICATION. The following summary of the
topics for discussion will be of interest:
Measurement
Communication
1. The ascertainment of Periodic
Financial Results
2. Bases of Accounting other than
Historical Cost
3. Principles and Problems in Conso
lidation
1. The Audit Report
2. Information for Proprietors and
others
3. Information for Management
An attractive social programme is being arranged.
This will include the traditional functions ofan opening
reception, a Congress dinner, a symphony concert with
alternate entertainment and a closing dinner dance.
*
July-September, ."9
An interesting programme for ladies is also being
arranged.
About June, 1970 copies of an advanced programme'
to all participating bodies will be circulated and
bulletins rtporting the progress of arrangements will
be sent at six-months intervals.
The President of the Congress while extending an
invitation to the President and the members of this
Institute has expressed the following:
"At the heart of all our organisation is a desire to
ensure that the Tenth Congress will consolidate
relationships between accountants from all parts
of the world, enable them to meet here in Australia
to discuss matters of mutual interest and provide a
pleasant opportunity to enjoy the hospitality of
the profession in Australia which feels deeply
indebt( d to those who have entertained our mem
bers at former congresses.
I do look forward to seeing you and many of your
members in Sydney in October, 1972 and will
appreciate your in making the Cong
ress an outstanding "
This information is being published in the Journal
as a preliminary notice giving the dates, venue and
theme so that interested members may start making
plans to visit Australia in October, 1972.
(The Council hopes to consider the matter at the
next meeting in December. 1969 and a circular to
members will follow thereafter).
* *
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*AUDITING THE AUDITOR
Like Caesar's wife, the auditor must be ahove
suspicion. And so he was until recently. But in
the past two years he has heen the target for an out
burst of criticism in Britain, the United States and
Australia. Is he really as independent as he needs
to be when he is, in effect, appointed by the very
people be is reporting on and who provide his in
come? And what about those accounting prin
ciples: do they really produce results that are true
and fair?
This sudden questioning has come about as life
offices have moved into equities, as people have
switched their savings into unit trusts, as occupa
tional pensions have spread: in short, as the pro
blem of judging company accounts has come to affect
everybody. directly or indirectly. Shareholders do
not have the right or the means to check the ae
L'Ul'acy of publisbed accounts; they rely on the au
ditor. To many people be is a watchdog, if not a
bloodhound, whose main function is to detect fraud.
But this is not so. His most important job is to
authenticate the accounts presented by company
managements to the investing public at large. What
happens in practice is Ihis: the management pre
sents draft accounts to the auditor; he and his staff
then investigate the underlying records to verify the
accuracy of the accounts (to see that the assets exist,
have heen fairly valued, and so on); and then the
aditor approves the way these facts and circum
stances are reflected in the cold ligures in tbe com
pany's published balance sheet and profit and loss
account. On the rare occasions when he and the
management cannot agree, the management's ver
sion is published and the auditor qualifies his report.
It is this question of presentation that has caused
some of the recent criticism. There are no absolute
measures of profits or assets. The auditor merely
applies the guidelines laid down by the professional
accounting bodies; lhese are drawn up in general
terms and not for individual industries, let alone
for individual companies, whose circumstances can
vary hugely. And even companies in the same in
dustry may be using quite different bases without
their various firms of auditors, let alone their share
holders, knowing what differences exist. Indeed,
one authority calculates that the rules for valuing
-Reproduced from uTbe Economist
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, London. August 9,
1969.
Jul),-Septemher, 1969
assets on a company's balance sheet can be com
bined together in at least a million different ways,
to produce over a million alternative "true and fair"
views of the same set of facts. Thus, the solicitor
general of the State of Victoria, in his report on the
collapse of the large Australian Reid Murray group,
commented that common sense compelled him to
reject a numher of the group's accounting
that were apparently acceptable to the profession.
Two immediate reforms are needed. One is
to make the auditor disclose fully how accepted
accounting conventions have been applied to the
company accounts he is attesting, a disclosure that
might cover such tricky questions as depreciation
policy, how work in progress is valued, how deve
lopment expanditure is written off, what is done
about the cost of advertising and promoting a new
product and so on-all decisions that are now made
under a cloak of secrecy. The other is to make the
auditor give the maximum and minimum figares for
total asset value and profits if accepted accounting
principles were stretched in both directions.
These reforms would have two useful effects.
Shareholders would immediately become better in
formed about their companies. And there would grow
up, over time, a body of published information On
how accounting prinCIples are being applied. So, for
the first time. auditors would gain an insight into
the way accounting principles were actually being
applied to the acccunts of companies other than
those audited by themselves.
There remains the problem of the auditor's inde
pendence. In practice, managements can usually
find a pretext for getting rid of him if he is being too
awkward, or at least make his life miserable or im
possible. If he does other work for the firm, for
example as tax consultant, management consultant,
adviser on computer installation, or on wage or
honus incentive schemes, his vulnerability is even
greater. To be fair, there is not a straw of evidence
to suggest that the integrity of the auditor is being
eroded in Britain, the United States or Australia, by
such financial pressures. What is at issue is whether
he can, as a human being, preserve his independence
of mind when he works so cl()5ely with company
managements on a growing range of problems over
most of the year, and then suddenly has to change in
to an outside watchdog for four weeks In February.
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This isslle'would virtually disappear if the follow
'irig reforms wete carried out. Auditing Iii InS would
continue to act as they do today, looking at the facts
of the particular situation and considering the aeeount
ing treatment proposed by the company management.
Where clear-cut precedents were known to exist, the
auditor could point to the evidence and his position
in checking this accounting treatment would be
immeasurably stronger. But where there was any
doubt about the aeeounting treatment proposed by
the management, what then? The system would
be greatly strengthened if there were a board ofjudges,
selected from the accountancy profession, to whom
it would be the auditor's duty to refer the case. Their
job would be to hear evidence on contentious issues
of accounting prinCiple, and to give a judgment on
the best method, in the circumstances, of showing
a true and fair view. They would be paid by the state
and so would be entirely independent of the companies
concerned. All the hearings and judgments would
be reported like law cases and could then be used
*
as guides in future cases. And any suspicion that the
auditor was accusing the company of malpractice or
incompetence would be removed, by using the COn
tinental inquisitional system of hearings, rather than
having the auditor stating the case, so to speak, for
the prosecution.
It would be misleading to give the impression
that the British aeeounting profession is in a mess
or that the system is breaking down, so that from
now on all public companies should be checked Over
annually by an official watchdog. Professional ex
pertise and integrity is stilt the auditor's hallmark.
But it is quite wrong that often he should bave to
make arbitrary judgments involving people of wbom
be is not totally independent. And a body of audi
ting Case law is badly needed to standardise the way
accounting principles are applied to similar sets of
facts. It cannot be built overnight. but a start can
and sbould be made.
*
(Contd. from page 10)
the same as has already been stated. Yet, the cir
cumstances may be different to some extent in a de
veloping country. Usually machines, equipment,
finished products and some raw materials are im
ported by developing countries from different sources.
If such goods are regularly marketed within the
country, the current values of assets in use may be
determined on the basis of current market price.
In tbe case of goods not available in regular markets,
the current price may be obtained from the agents
or suppliers, but in such cases a price index method
(tbe general or specific price indelt whichever is suit
able) may be more appropriate because of the un
certainty as to the source of supply for replacement.
It has already been mentioned that in the process of
revaluation difficulty arises mainly in respect of med
assets, the value of which is influenced by technolo
gical cbanges. In a developing e<:onomy, technolo
gical changes abroad have little impact upon the
values of existing assets. In cases where machines
and equipment are produced within the country,
technological changes in the industry producing such
goods are very slow. When modern machines and
equipment are imported, such assets are not usually
replaced before tbe end of their expected lives. This
is because an under-developed economy cannot afford
ultra-modern teChniques to replace fairly modern
ones. Moreover, such replacement is not essential
in a situation in which primitive metbods, large-scale
unemployment and under-employment and scarcity
of capital constitute major problems. Because of
14
abundance of low cost labour, scarcity of capital and
low income of the people, older technology may be
as profitable as the improved one. In such a situa
tion, unexpected obsolescence is seldom a problem.
Of course, value-adjustment will be necessary in
cases where due to technological changes the asset
faces some specific disadvantages (or advantages)
Whereby profit is affected. In such cases, the value
of the asset in use should be adjusted in the ratio
of net disadvantage (or advantage) to current de
preciation as has been shown earlier.
COKlu$lon
It i. true that some practical difficulties will arise
in the determination of values of assets that are in
use in a going concern. But it is doubtful whether
on this ground alone accountants will be able to ig.
nore indefinitely the valuation of assets unless they
are oblivious to the usefulness ofthe information which
they produce. The argument that some sort of
current values are inevitable in accounting bas been
supported witb increasing emphasis. Since the pro
blem of valuation arises out of the necessity for values
to coincide with the nearest approximation of fact,
it should be dealt with like may other accounting pro
blems to which there is no unique solution. (Such
as, the problem of depreciation. overhead allocation
or profit determination before completion of work).
Moreover, revaluation of assets seems to be edSier in
a developing country tban a developed one parti
cularly because of relatively less impact of techno
logical changes upon the value of assets.
The Pakistan AteOoataDt
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