DEFINITION of Remeasurement
Remeasurement is the re-evaluation of the value of a physical asset or foreign currency on a company's financial statements. Remeasurement is a process of reestablishing the value of an item and is used across a few situations. The first is when the value of a hard, long-lived asset has changed, such as land. A company holds the value of land it owns on the balance sheet. If the value of the land changes significantly it may no longer be reflected accurately on the balance sheet and could, therefore, lead to an inaccurate valuation of the company. Remeasuring the asset allows the company to more accurately record the value of the asset and may allow a deductible loss to be taken.
The second situation where remeasurement is common is when dealing with a company with a foreign subsidiary. If the functional currency of the subsidiary is not equal to the local currency of the subsidiary, the parent company must use remeasurement to evaluate the effect of foreign currency translation on the parent company. It is also used in cases where the subsidiary is operating in an environment where there is hyperinflation or large and frequent swings in the currency exchange rate. Remeasurement, it this context, is also known as the temporal method.
BREAKING DOWN Remeasurement
When dealing with hard, long-lived assets, the most common remeasurement takes place within a company's long-term assets section under the firm's balance sheet, most notably in the "land" account. Land often appreciates with time, and a company must show this appreciation as an adjusting entry under an account named "modified historical cost," or "mixed measurement system."
When dealing with currency translation and a foreign subsidiary, gains or losses from foreign currency translation are recorded in the "current income" portion of the income statement. This can influence the profitability of a business.