Asset revaluation is a technique used to revaluate a company's assets to take into account inflation or changes in value since the assets were acquired. Usually, revaluations are carried out for an asset whenever there is a difference between the asset's current market value and its value on the company's balance sheet.

A revaluation reserve arises when the value of an asset becomes greater than the value at which it was previously carried on the balance sheet. However, not every increase in the asset value is added to the revaluation reserve. The exact treatment depends on the history of the asset – whether the asset has been impaired, that is, whether the asset has had unplanned depreciation carried out.

In the case of an asset having unplanned depreciation, the value increase resulting from the revaluation is used to reverse the planned depreciation. And if there is any surplus, it is added to the revaluation reserve.

Similarly, a value decrease resulting from the revaluation is used to reduce the revaluation reserve, with any excess treated as unplanned depreciation and taken as a loss.