Who will Take Costs Incurred by Revaluation? The Choice between Two Kinds of Measurements

Na Ra Kang, Tae-Young Paik

Abstract

The issues of when fair value accounting should be applied and under what circumstances it is valuable are still unresolved problems. This study investigates differences in expected costs and benefits using a natural experiment in Korea. Assets revaluation had been prohibited since 2000 but was re-allowed owing to a change in the Korean GAAP in 2008. At the time, some unlisted firms used appraised prices to revalue their lands, paying costs. Others used the prices announced by the government for taxation, avoiding out-of-pocket costs. Through this unique setting, we investigate how the out-of-pocket revaluation costs play roles in assets revaluation.