Fundamentals of Accounting

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The accounting issue for groups of students to research and discuss the pros and cons and in the conclusion to take a position is revaluation of land. In the United States only historical cost is acceptable on the balance sheet, whereas in England according to certain criteria is acceptable to revaluate land.


The balance sheet will show the financial position of your business at a defined date. It is, therefore, merely a snap-shot of your business. The actual figures listed will have fluctuated throughout the year as your business makes sales and purchases. The individual components of the balance sheet will come under three headings:

  • Assets
  • Liabilities
  • Capital

How is it compiled? The balance sheet is compiled from the asset and liability figures taken from your trial balance. These figures are placed in a logical format in order to arrive at the net worth or surplus resources, of your business.

If the figure is negative this means that your liabilities exceed your assets. Without an injection of cash into the business, preferably from your own resources, the business would be unable to meet its debts as they become payable. If you encounter this situation you must seek the immediate advice of your accountant. Even if you operate as a limited company you could still incur personal liability under certain circumstances if you continue to trade.

Is it an accurate value of the business? The plain and simple answer is no. The balance sheet is compiled using the 'book' value of assets. Moreover the revaluation makes the balance sheet more accurate in contrast of keeping the same value of the land.

Main body

First of all, in the United States only historical cost of land is acceptable on the balance sheet. That means that the changes of land values in each year are not been concluded on the balance sheet making it less accurate. Moreover the taxes are been paid from the land owners are not balanced with the exact value of their lands and there is a possibility to have illegal profits from non revaluation. In contrary in England revaluation land is acceptable according to certain criteria. That means that balance sheets of England's companies are more accurate, showing that they function in a more proper way.

Therefore land revaluations increase fairness by ensuring that property owners are paying their fair share of the taxes. Furthermore, the more often it is done, the better. The longer you wait to do the assessment, the worse some of the negative aspects become. This leads to clamouring by property owners as they try to make up for dramatic changes in the amount of taxes they owe. This leads to panic and difficulty selling the property. Some of the cons may cause local leaders to delay reassessment even if it is clearly needed. This includes the cost which averages around $50-60 per parcel which does not include postage, supplies, staff time and time spent by the local boards. There are also negative political implications since property values go up (more so the longer you wait). There is additional cost through the grievance process as well. Even if grievances are unfounded there is still a cost associated with them.

Also the timing of a reassessment is extremely important. It is important that there is relative stability. For example, since the Town of Conklin continues to deal with the impact of the flood in 2006, it would not be a good time to do an assessment. A good time to do an assessment would be a period of growth in the construction market. At that time the town is adding to its tax base minimizing the impact on individual tax rates.

The state is considering a cycle bill to have a property revaluation for the whole state in the same year. This would avoid the risk of people moving out of a town that chooses to do it to a nearby town with lower assessments resulting from delaying the process. If this was done towns that did revaluations, like Vestal, wouldn't get so much flack. A cycle bill every 3 years with a tax freeze fro 3 years would have an equalization rate of 100%. Then the money that would go toward creating an equalization rate could go toward the assessment itself reducing the cost. Despite potential benefits there would be little support for such unfunded mandates.

"Dave Hamlin, currently Town of Fenton Supervisor, has 20 years of experience as an assessor. His experience is in small communities where there is little support for property revaluation. There is no way that he would recommend a revaluation right now, in this economy. It would be too costly and updates would not happen. As a politician, he sees there is little to gain from that perspective.

The only way it can be done is through a mass appraisal on a large number of properties and everyone needs to be on board, including the supervisor, clerk assessor and town board. The officials in a community may want to do it, but it is a tough sell to their constituents."

Equalization rate the average ratio of assessment to full market value in a town based on valid sales. If the assessment doesn't change but sales go up then the equalization rate goes down. The coefficient of dispersion is another way to express this. Ideally, the equalization rate should be 100% for all municipalities. In order to get a true equalization rate it must be based on an assessment of a full town or region. You cannot spot assess and must look at all sales and interpret what they tell you about the market through a pre-decisional calibration analysis.

People do not understand how changes in the market affect it which is what is causing many of the complaints. He admits that maybe the current economic climate is not ideal for a reassessment. However, this process was started three years ago. Since what they began to find out was that the inequities were outweighing the equities, they had to continue with the reassessment despite the economic downturn. Mike Marinaccio mentioned that he thinks that when the equalization rate goes down it is actually a good sign because it means that homes are selling at a higher price than they are assessed. Because neighbourhoods are based on homogenous properties, a reassessment will often result in a new delineation of neighbourhood boundaries to reflect changes in development over time. Vestal for example went from 9 defined neighbourhoods to 16.

Peter Andresen mentioned that prior to the reassessment people thought that the tax base would shift more toward the commercial properties from residential due to the increased commercial development since the last assessment. However, preliminary analysis showed a likely shift in the opposite direction. This is attributed to the fact that many of the commercial properties are owned by tax-exempt entities which makes it look like the residential tax base is paying an unfair share in comparison to the commercial tax base.

After the assessment the value of 4900 properties went up, 2200 stayed the same, and about 2000-2500 went down. However, for about 4400 properties the taxes went down. Vacant land was hit the hardest. Since it has been so long since the last assessment the value used to be around $100/acre but now the average value is typically more than $1000/acre.

The group acknowledged that the issue of property revaluation is really a no-win situation. From a politician's perspective, it tends to be a volatile issue that could make you unpopular with a segment of you constituent population. However, the longer you wait to do it, the worse the negative aspects become. At this point many of the local municipalities are getting to the point where it has been too long and will eventually reach the point where it will be difficult to remedy the damage that has been done from waiting so long

However from land owners' perspective , a possible land's overvaluation could be profitable, as their assets could increase but in many cases there are a lot of cons of it.

We believe that an increase in land values based on the application of an alternative use (i.e. opportunity cost) valuation is:

Inefficient. It overvalues the service provided by the asset in its operational use, penalising airlines and their passengers. Allowing airports to artificially increase the value of their assets and the return they receive on it does not create any clear incentives for greater efficiency in the use of these assets. By contrast, we can look to rely on higher land values to maintain their profitability, rather than actively work with customers to improve operational efficiency.

Unfair. It merely creates unearned returns (i.e. windfall gains). Companies should not pay for an investment in land; they should pay only for the services they provide. In other words, a company should not pay higher charges for using the same asset simply because the investment value has changed. Also they can realise the investment value when surplus land is sold or the provider itself changes ownership.

Impractical. When there is no feasible alternative use, the opportunity cost valuation has no clear basis. In the vast majority of cases, much of the land is either designated for company's use or impractical for other uses. Indeed, often the land is leased rather than owned by the company, so could not be sold without Government consent. If the land is owned, and can be sold, it can appear in financial accounts with the higher value realised when sold, but should not affect the level of charges.

Impractical. Adjustments to charges based on unearned land value appreciations are not allowed in other regulated industries (e.g. energy, water). They are not a factor in the pricing decisions of firms operating in competitive markets (e.g. Supermarkets).

Eventually, from the formula  assets= liabilities + share owner's equity we will show why revaluation of land is  profitable for each state and  each company when they function in a proper way.

For example, when the land is under evaluated, the assets are decreasing and so the liabilities are decreasing (because the taxes that owners pay are lower) and the share owner's equity is decreasing.

In the same way when the land is over evaluated, the assets are increasing, the liabilities are increasing (because of the higher taxes) but the share owner's equity is increasing too. In contrary, when in the balance sheet, only the historical cost is estimated, then it happens the following: when the land is under evaluated, the assets are decreasing but as the taxes remain high and so the liabilities, then the share owner's equity is decreasing more than it should and so the owners lose more money. On the other hand when the land is over evaluated then the assets are increasing, but as the taxes remain low (and so the liabilities) then the share owner's equity is increasing in a higher rate than it should. As a result of it, the owner's earn more money than the legal one, and the state lose more money.


To sum up, England's tax system, where the revaluation of the land is calculated on the balance sheets is better, more fair and more profitable for the state and majority of the land owner's, than the USA's one. That's because, on the one hand, fair taxes are being paid from the owner's and the other hand all kind of speculations of some land owner's  and  real state offices, that harm the state's income and the citizens, are being impugned.


Dave Hamlin quote taken from

City University Library

Book: Porter, G.A., Norton, C.L., Financial Accounting, South-western, 3rd edition.


Balance sheet: Balance Sheet of XYZ, Ltd. as of 31 December 2006


Current Assets

Cash and cash equivalents

Accounts receivable (debtors)


Prepaid Expenses

Investments held for trading

Other current assets

Fixed Assets (Non-Current Assets)

Property, plant and equipment

Less: Accumulated Depreciation


Other intangible fixed assets

Investments in associates

Deferred tax assets


Creditors: amounts falling due within one year (Current Liabilities)

Accounts payable

Current income tax liabilities

Current portion of bank loans payable

Short-term provisions

Other current liabilities

Creditors: amounts falling due after more than one year (Long-Term Liabilities)

Bank loans

Issued debt securities

Deferred tax liability


 Minority interest


Share capital

Capital reserves

Revaluation reserve

Translation reserve

Retained earnings