Revaluation of fixed assets and its effects on the reported earnings of selected companies in the Philippines

• Main Author: Baltazar, William Barja
• Format: text
• Language: English
• Published: Animo Repository 2006
• Subjects: Capital > Philippines; Asset management accounts > Philippines; Valuation > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/3374
• Institution: De La Salle University

The study attempted to investigate the effects of revaluation of fixed assets on the reported earnings of selected companies in the Philippines. Specifically, the study examined the effects of the fixed asset revaluation on the Earnings Per Share (EPS) of the following selected companies: MERALCO, ABS-CBN, Makati Medical Center, Philex Mining Corporation and Unilever Philippines, Inc. Likewise, it studied the effects of fixed asset revaluation on the profitability of these selected companies in terms of Rate Earned on Average Total Stockholder's Equity and Rate Earned on Average Total Assets. This study believes that recognition of revaluation of property, plant and equipment in financial reporting will prove to be useful to investors, creditors, management, employees, the government and all others who use financial information as a basis for decision-making. The study was limited only to the selected companies in the Philippines that have chosen to revalue their fixed assets, namely, MERALCO, ABS-CBN Broadcasting Company, Makati Medical Center, Unilever Philippines, Inc. and Philex Mining Corporation covering the years 1997-2004. Three of these companies had already opted to choose not to revalue their fixed assets in 2002. These are the ABS-CBN, Unilever Philippines Inc. and Philex Mining Corporation. As a result, the analysis was affected for three years, namely, periods 2002, 2003, and 2004. For its research methodology, this research used the case study approach and through content analysis, it was able to examine the effect of revaluation on fixed assets on the reported of the selected companies investigated in the study. Findings of the study show that the profitability of the selected companies covered by the research in terms of their Rate of Return on Average Total Stockholder's Equity showed that revaluation of fixed assets is affected (except for Philex Mining Co.) as evidenced by the magnitude of change in the rate of return for eight years period (1997-2004), as follows: A. MERALCO (20.08% - (-64.19%) B UNILEVER PHILS. INC. (15.00% - 1.97%) A. ABS-CBN (2.18% - .33%) B. MAKATI MEDICAL (14.21% - 1.64%) The effects of revaluation of fixed assets on the profitability in terms of Rate of Return on Average Total Assets is just minimal (less than 1%) for the selected companies except for Philex Mining Co. per magnitude of change in the rate of return, as follows: C. MERALCO (3.65% - (-2.90%) D. UNILEVER PHILS. INC. (.86% - .28%) E. ABS-CBN (.84% - .10%) F. MAKATI MEDICAL (.65% - .09%) On the effects on earnings per share, the following it was observed that the revaluation of fixed assets greatly affects the earnings per share for MERALCO due to magnitude of change of the EPS for five (5) years period between 45% - 17%. This is because of the additional depreciation charged to operations because of the appraisal made of its utility plants. For Unilever Phils. Co., the revaluation seems to have a insignificant effect on the EPS as evidenced by the magnitude of change ranging only from .81% to .45% (less than 1%). In the case of ABS-CBN, for 1997, the change is less than 1% (only .88%) and for the years 1998-2001, EPS is not affected because the company ceased to charge additional depreciation although they present their fixed assets at revalued amounts in the balance sheets. For Makati Medical Center, EPS is again, not affected since it revalued only its land in Makati and this account is not depreciable in nature. Lastly, the revaluation has no affect on the EPS of Philex Mining since it revalued only its building with a minimal appraisal increase only of P1.5 million as against its costs of P323.7 million with a corresponding additional depreciation of only P57,000 per year. The study concludes that most of the selected companies covered by this research failed to comply with the required disclosure requirements of the Statement of Financial Accounting Standards No. 12 paragraph 18 and the new. IAS No. 16. In view of the research findings, it is recommended that the Securities and Exchange Commission (SEC) should closely monitor the compliance with the SFAS particularly disclosure requirements of the Philippine companies with regards to their Property, Plant and Equipment particularly those which opt to present at its revalued/appraised amounts. Conduct seminars on the topic on revaluation of fixed assets should be done for companies which are planning to revalue their fixed assets in order that they may be aware of the costs and benefits of revaluation. Additional future researches should be conducted on the effect of fixed asset revaluation on the reported earnings of the companies per new SFAS/IAS No. 16.