서초발전설비(주)의 자산재평가 의사결정이 재무제표에 미친 영향

Seocho Heavy Industry (SHI) is a manufacturing company that uses a special equipment to produce machines used in power plant. Due to recent economic development in Asian and other countries, the deman for electricity had been increased and thus the demand for the SHI’s machine also increased. To meet the increasing demand, SHI made huge investment with cash raised from foreign currency-denominated debt. However, during the World Economic Crisis of 2008, the demand dropped sharply and SHI faced severe financial troubles. To solve the crisis, SHI considers assets revaluation. If SHI revaluate assets, both assets and shareholders’ equity increase and thus debt-to-equity ratio decreases, revealing favorable effects for the financial status measured by financial ratios. Because of this reason, many companies revaluated assets at the time. In contrast, the increased asset values for depreciable asset account will be reflected in the increased depreciation expense in the subsequent period. In summary, because there are pros and cons for the effect of assets revaluation, the firm needs to be careful on the decision for the assets revaluation. This case examines the decision-making in view of SHI as well as the way to interpret asset revaluation in view of investors.