Valuation Reserve

Valuation Reserve: Valuation reserve can be very basically, defined as a reserve fund set up by a charge set up against the earnings of an organization. This is to safeguard the company against any change in the valuation of the organization’s assets. This reserve fund can be called upon if the original valuation of an organization’s assets is reduced for some reason.

One of the biggest reasons for the existence of a valuation reserve is accumulated depreciation since all organizations would have assets whose value would depreciate over the coming years. Moreover, another consideration is that the company assets, such as machinery would, as the years go by, become obsolete and require replacement or up gradation.  Thus, the valuation reserve can help tide over the impact the reduced valuations of an organization’s assets would have on the overall value of the company and facilitate easier replacement of older equipment with more efficient ones.

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Edited and Updated 08th March 2014

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