Companies should use care in revaluing assets

Companies should use care in revaluing assets

JAKARTA (JP): Public companies must be careful when carrying
out asset revaluations if they do not want to damage their
financial ratios and stock performance, advises Jusuf Halim of
the Jusuf Halim & Partners accounting firm.

Jusuf told members of the Indonesian Public Companies
Association in a discussion yesterday that a public company
should take into consideration several aspects before revaluing
its assets, including costs, benefits and how it will affect
accounting and financial issues.

He said that in case of upward revaluation, when a company
earns capital gains after revaluation, the value of the company's
total assets will increase.

A higher value will increase equity and future depreciation,
he said, therefore pushing down profit margins, the rate of
return on assets and the rate of return on equity.

Jusuf noted that higher depreciation after revaluation will
reduce a company's retained earnings and weaken its ability to
pay dividends.

"I don't think a company's shares are still interesting if the
company cannot pay high dividends," he added.

Higher depreciation will cause an increase in the cost of
goods sold. A decrease in profit will lower earnings per share,
meaning that the price earning ratio will increase.

"When it happens, investors will regard such a stock as
overvalued.

"It's worth noting that financial ratios have different
meanings to different companies, so I would say that the impact
of revaluation may also be different."

But in general, he said, the impact of revaluation on listed
companies is different from non-listed companies.

"Unlisted companies may not care about the impacts," he said.

Jusuf also said that public auditors need more detailed
guidelines on how to book capital gains or capital losses that
result from revaluation in a company's financial statement.

He said that under current public accounting standards, public
accountants should audit the reports of appraisers before giving
an opinion about the company's financial report.

Meanwhile, the Directorate General of Taxation's director of
income tax, I Made Gede Irata, confirmed that the revaluation
program is not mandatory. If a company wants to revalue its fixed
assets, he said, it should comply with the guidelines.

Irata warned that his office has the right to appoint an
independent appraisal company to revalue an unqualified
revaluation report.

Minister of Finance Decree No. 507, issued on August 13, 1996,
stipulates that the Directorate General of Taxation has the
authority to determine the "fair market value" of a company's
assets if the revaluation done by an appraisal firm is considered
unfair. (alo)