SNB Capital identifies companies likely to adopt revaluation model for measuring machinery, equipment

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SNB Capital recently released a report forecasting the types of companies that will adopt the revaluation model to measure machinery and equipment.

The report stated that adopting the revaluation model would benefit companies with unique and specialized equipment, as well as those looking to improve their financial leverage ratios, address low valuations, manage high replacement costs, or account for fully depreciated assets.

It predicts that industrial companies in the Saudi market will consider using the model, especially as some assets may be fully depreciated or unique with significant replacement value.

SNB Capital also noted that companies with low price-to-book ratios and high debt levels are likely to adopt the model to unlock value and enhance their leverage profile. However, it anticipated that the disclosure requirements and costs associated with the revaluation process could limit the model’s adoption.

It explained that several accounting adjustments will follow the adoption of the revaluation model. If an asset is revalued higher than its book value, the difference will be recognized in other comprehensive income and accumulated in shareholders' equity under "Revaluation Surplus," along with an increase in assets.

As a result, depreciation costs will increase based on the asset’s new value. In cases of revaluation to a lower value, an expense will be recorded in the income statement.

The report also mentioned that when disposing of an asset, the amount will be transferred to retained earnings through the balance sheet.

According to data from Argaam, the Capital Market Authority (CMA) approved in December the use of the revaluation model for measuring machinery and equipment starting in 2025 or later. The use of the cost model for measuring intangible assets will remain mandatory for the next two years starting in January 2025.