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Appraisal capital is a term used to describe type of adjustment that is sometimes used in accounting practices to identify the difference between the book value assigned to an asset and the appraised value of that same asset, when the appraised value is higher than the book value. Once this difference is identified, it is recorded in the accounting books by entering the amount as a debit against the asset while also crediting the same amount to the equity account. While utilized in a number of countries around the world, this approach is not often used in company accounting in some nations, including the United States.
In countries that do recognize and record appraisal capital, the process used to document this difference between the appraised value and the book value of a specific asset is often referred to as a write-up. When an asset, such as a piece of real estate is appraised and that value is found to be more than the current book value for that property, the appraisal is understood to essentially create capital that must be captured in the accounting records. By using the combination of a debit against the asset and a credit in an equity account, the capital created by the appraisal is accounted for. Depending on tax laws in the nation where the property is located, this may be important in terms of calculating and tendering the proper amount of property taxes due each tax year.
As the appraised value of different assets can change over time, the process of adjusting appraisal capital takes place on a fairly consistent basis. Companies using this method may calculate any differences between the book value and the appraised value on an annual basis, especially if the tax laws in the country of origin would require capturing this difference. Most companies that use this method have specific policies and procedures for identifying appraisal capital and recording it in their accounting records on some sort of fixed schedule.
There is some difference of opinion as to whether tracking appraisal capital is a viable approach. Detractors tend to favor the idea that accounting for this difference between appraised value and book value may present an inaccurate perception of the capital actually held by the company. Proponents of this approach see it as creating actual capital that should be accounted for in order to keep the books balanced. In many instances, the issue arises based on whether the capital is appraised based on the current value of the asset or using some other method.
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