For many Kenyan SMEs, the concept of revaluing fixed assets might seem like a complex accounting exercise reserved for big corporations. However, understanding when and how to revalue your assets — and the tax implications that follow — is crucial for accurate financial reporting, better borrowing capacity, and long-term compliance with the Kenya Revenue Authority (KRA).
This article breaks down, what asset revaluation means under IFRS for SMEs, how it works in practice, and what every finance professional or SME owner in Kenya should know before undertaking it.
Fixed asset revaluation is the process of adjusting the book value of your company’s assets (such as buildings, machinery, vehicles, or land) to reflect their current fair market value.
This process ensures that your financial statements provide a realistic view of your company’s worth — especially when asset prices change significantly over time due to market fluctuations, inflation, or depreciation patterns.
Revaluation ensures that your company’s balance sheet reflects the true market value of your property, plant, and equipment. It becomes essential when the market has shifted significantly — for example, when property or machinery prices have appreciated due to inflation or economic trends.
For instance, if a Nairobi manufacturing company bought a factory in 2015 for KES 40 million, its fair value in 2025 could easily be around KES 70 million. Keeping it at cost undervalues the company’s assets and misrepresents financial strength to lenders and investors.
Improve borrowing capacity by strengthening the balance sheet.
Ensure insurance coverage reflects true replacement costs.
Present more accurate financial ratios to investors or auditors.
However, revaluation has no direct tax advantage — and that’s a crucial distinction we’ll explain below.
According to IAS 16 and IFRS for SMEs Section 17, assets should be revalued whenever their carrying amount differs materially from fair value. In the Kenyan context, revaluation is often triggered by:
Significant increases in market prices for land, buildings, or machinery.
Major renovations or upgrades that enhance asset value.
Financing or insurance requirements demanding updated valuations.
Inflation or currency movements affecting asset replacement costs.
Most SMEs in Kenya conduct revaluations every three to five years, unless there’s a major change in market conditions.
Under IFRS for SMEs, companies can use either the cost model or the revaluation model. If you select the revaluation model, it must be applied consistently to all assets within a particular class — for instance, all buildings or all machinery.
The revaluation must be done by a registered professional valuer recognized by local authorities. The valuer’s report should include details on the methodology, assumptions, and comparable market data used. This documentation is essential during audits or KRA reviews.
If the asset’s value increases, record the surplus in Other Comprehensive Income (OCI) and transfer it to a Revaluation Reserve under equity.
If the value decreases, the deficit is recognized in the Profit and Loss Account, unless it reverses a previous upward revaluation for the same asset.
After revaluation, depreciation is based on the new carrying amount and remaining useful life.
For example, if a factory building’s value is revised from KES 40 million to KES 55 million, with a remaining life of 20 years, the new annual depreciation would be KES 2.5 million (instead of 2 million before revaluation).
Here’s where most SMEs get confused. Revaluing an asset does not mean you can claim higher tax deductions. The Income Tax Act (Cap. 470) and KRA guidelines are clear on this.
In Kenya, accounting depreciation is not tax-deductible. Instead, businesses claim Investment Allowance (Capital Allowance) based on the actual capital expenditure incurred, not the revalued amount.
For example, if machinery originally cost KES 10 million but was revalued to KES 15 million, your Investment Allowance is still based on KES 10 million — the original cost.
A revaluation usually creates a temporary difference between the asset’s accounting carrying amount and its tax base. Under IAS 12, this requires recognizing a Deferred Tax Liability (DTL), typically at 30%. While this doesn’t immediately affect your cash flow, it must be properly recorded for compliance and audit purposes.
When you eventually sell a revalued asset, Capital Gains Tax (CGT) of 15% applies on the net gain (sale price minus purchase cost and incidental expenses). Note that CGT is only triggered upon disposal — not when you perform the revaluation itself.
Scenario:
A manufacturing firm in Thika bought its factory building in 2015 for KES 40 million. By 2025, an independent valuer estimates its fair value at KES 65 million.
Record a KES 25 million revaluation surplus in OCI.
Create a Revaluation Reserve in equity.
Adjust future depreciation based on the revalued amount.
Continue claiming Investment Allowance on KES 40 million (the original cost).
Recognize Deferred Tax Liability (30% of the revaluation surplus).
No CGT arises until the asset is sold.
The company’s balance sheet looks stronger and more reflective of market realities, but its tax deductions remain unchanged.
Revaluation impacts more than just your books — it influences financial planning and cash flow forecasts. Here are key points for SMEs and finance managers:
Separate accounting and tax schedules. Maintain dual asset registers — one for accounting (revalued) and one for tax (cost-based).
Budget for valuation costs. Professional valuations typically cost between KES 100,000 and 500,000, depending on asset type.
Include deferred tax impacts. Though non-cash, deferred tax affects equity and net asset value.
Review KRA Investment Allowance rates annually. These change occasionally under Finance Acts.
Align revaluation timing with your fiscal calendar. It’s best done before year-end audits or major financing rounds.
Expecting tax savings from revaluation — it doesn’t change your KRA allowances.
Revaluing selected assets within a class — this breaches IFRS principles.
Ignoring deferred tax implications — a common audit red flag.
Failing to keep documentation — lack of valuer reports or asset schedules can lead to KRA disputes.
Neglecting to update depreciation after revaluation — leading to misstated profits.
No. It affects your accounting statements, not your taxable profit. You still claim capital allowances on the original cost.
No. You can continue using the cost model, provided it gives a true and fair view of your assets.
Not directly, but ensure your financial statements and deferred tax calculations are consistent with your tax filings.
Yes. Lenders often prefer revalued financial statements to assess true collateral value.
Every 3–5 years, or sooner if there’s significant market change.
You’ll pay CGT (15%) on the net gain. Any revaluation reserve related to that asset can be transferred from equity to retained earnings.
Revaluing fixed assets is more than an accounting exercise — it’s a strategic tool for financial transparency, lending credibility, and risk management. However, it must be done in line with IFRS and KRA’s tax laws.
Revaluation boosts your balance sheet, not your tax deductions.
Investment Allowance remains based on original cost.
Deferred tax and CGT must be recognized accurately.
Proper documentation ensures compliance during audits.
By managing revaluation strategically, Kenyan SMEs can achieve financial clarity, attract investors, and stay tax compliant — all while preparing for growth in a dynamic economy.
Revaluing fixed assets isn’t just an accounting exercise — it’s a strategic decision that can redefine your company’s financial position and credibility. But getting it right under IFRS for SMEs and KRA regulations takes expert knowledge and precision.
At Spondoo Kenya, we specialize in helping SMEs, corporates, and professionals navigate the complexities of asset valuation, deferred tax treatment, capital allowances, and KRA compliance — ensuring your books are accurate, defensible, and audit-ready.
Expert guidance on IFRS & KRA-compliant revaluation processes
Preparation of asset registers and valuation documentation
Deferred tax and capital allowance optimization
Hands-on financial reporting and audit support
Get personalized advice on how to revalue your fixed assets correctly and legally.
👉 Visit www.spondoo.co.ke or email supportteam@spondoo.ke to schedule a consultation with our financial experts.
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