research is on assets of revaluation and assessment of borrowing capacity for
selected banks in Nigeria. The study proposes that asset valuation occurs to
signal available borrowing capacity via increase in collateral values and the
time of increase in secured debt that the economic benefit associate with an
asset revaluation will be greatest for banks when they are experiencing time of
declining cash flows from operations. The study also looks at whether the
incidence of valuation coincides with increase in level of secured borrowing
due to the lenders demand for current value of assets offered as collaterals.
Results there is significant difference between methods of valuations and
declining cash flows experience from operating activities of banks. The
evidence also indicate that there significant difference between asset
revaluation and borrowing capacity by banks. Based on this findings, the
researcher believes that there are adequate legal regulations to curtail
indiscriminate assets revaluations by firms, and also assets value of a firm is
the most important determinant of its borrowing capacity. Finally, assets
revaluations performed by independence valuer is more reliable than that
performed by the directors of the firm.
TABLE OF CONTENTS
Cover Page i
Title Page ii
Approval Page iii
Table of Contents viii
Chapter One: Introduction 1
to the Study 1
of Problem 3
of the Study 4
of Hypothesis 5
of the Study 6
of the Study 7
of the Study 8
Definition of Terms 9
Chapter Two: Literature Review 10
2.1 Introduction 10
of Fixed Asset 11
for Revaluation 11
of Revaluation of Fixed Assets 13
of Borrowing Capacity 15
Financial Needs 17
of Bank Lending 19
of Bank Lending in Nigeria 22
of the Advance 24
Chapter Three: Research Method and
3.1 Introduction 25
of Population of the Study 25
of Data Collection 26
of Data Presentation 27
of Data Analysis 27
Four: Data Presentation, Analysis and
4.1 Introduction 29
4.2 Presentation of Data 29
4.3 Data Analysis 30
4.4 Hypotheses Testing 40
Five: Summary of Findings, Conclusion and
5.1 Introduction 48
5.2 Summary of Findings 48
5.3 Conclusion 49
5.4 Recommendations 49
Appendix I 52
of the Study
Asset valuation has always been a
major subject of studies accounting standards, as the issue is closely related
to measurement and disclosure of corporate income. Prior research has found
support for contracting, political cost and information asymmetry explanations
for management’s decision to revalue non-current assets (Cotter & Zimmer,
2005). They further argued that the economic benefits associated with asset
revaluation by firms are greatest for such firms when they are experiencing
times of declining cash flows from operations.
Evidence also indicates that firms
are more likely to record re asset revelation when they intend increasing their
secured borrowings and that most non-year-end revaluations emanate directly
from contracting with lenders (Cotter & Zimmer, 2005).
According to Osanyame (2006), when a
request for, a loan is received, it is important to ascertain the credit
worthiness of the borrower, i.e. the firm memorandum and articles of
association need to be pursued to see if there is any precluding clauses or
limitations on borrowing. The importance of this examination has been covered
in law relating to banking in which a banker has to be knowledgeable.
The failure by banks in the
assessment of the borrowing capacity of firms have been a major stumbling block
for the industry. Many banks have work under, due to this singular act which
leads to the granting of loans to firms disgusting their financial reports with
grand figures of revalued asset so as to increase their borrowing capacity.
The banking sector of the Nigeria
economy has witnessed many banks going under most of which has been their
inability to recoup loans borrowed to firms and interest from such.
The proper assessment of the
borrowing capacity of firms need to be ascertained by banks, bearing in minds
the revalued figures of the assets stated in the financial reports and their
actual current market values.
It has often been argued that, in
order to continually uphold the issue of reliability and relevance, the
financial statement must show the true financial position of an entity. In a
bid to ensure that these characteristics are achieved, the need for revaluation
of assets became necessary. Also, the value of assets available tends to affect
the borrowing capacity f firms.
The following are the research
questions of the study;
firms undertaking asset revaluation most likely to experience decline in
cashflow operation than firms that do not revalue?
does the revaluation of assets undertaken with the main aim of boosting the
firm borrowing capacity?
there adequate legal regulation to curtail indiscriminate asset revaluation by
is the asset value of a firm the most important determinant of its borrowing
what extent is the assets revaluation performed by independent value reliable
than the performance by directors?
of the Study
The objectives of the study are
ascertain if the firms undertaking asset revaluation most likely to experience
decline in cashflow operation than firms that do not revalue.
ascertain if the revaluation of assets is the main aim of boosting the firm
examine if there is adequate legal regulation to curtail indiscrimination of
asset revaluation by firms.
ascertain if the asset value of a firm the most important determinant of its
determine to what extent the assets revaluation performed by independent value
reliable than the performance by directors.
undertaking asset revaluation are not likely to be experiencing declining
cashflow operation than firms that do not revalue.
undertaking asset revaluation are likely to be experiencing declining cashflow
operation that firms that do not revalue.
revaluation of assets is not undertaken with the main aim of boosting the firm
revaluation of assets is undertaken with the main aim of boosting the firm
is no adequate legal regulation to curtail indiscriminate asset revaluation by
is adequate legal regulation to curtail indiscriminate asset revaluation by
value of a firm is not the most important determinant of its borrowing
value of a firm is the most important determinant of its borrowing capacity.
revaluation performed by independent value are not reliable than the
performance by directors.
revaluation performed by independent value are reliable than the performance by
of the Study
This research work will be paramount
use to the following groups:
Lenders: The research work centers are how
assets revaluation affects the borrowing capacity of firm. It seeks to unveil
the critical avenue through which assets revaluation tends to affect the
borrowing capacity of a firm. It explains the need for lenders to further
assess the cash flow from operating activities in analyzing the borrowing
capacity of firms.
Business organization: Due to the sensitive
nature of assets revaluation, it is necessary or firms to understand the
underlying mechanism for assets revaluation, it timing, benefits and problems.
This research work, thus provides a rich source of such information. It also
brings to the awareness of business organization. The legal regulations put to
prevent indiscriminate revaluation by management.
Shareholders/Stakeholders: Business organizations are managed
on behalf of its shareholders/stakeholders. The separation of ownership and
control of business organization necessitates the need to put in place
mechanism to mitigate. Incentive problems and conflicts interest between owners
and managers of Business organization. The shareholders are therefore required
to have a balanced understanding of the concept of assets revaluation as its
affects the borrowing capacity of the firm. The reason is that, reserve.
of the Study
The concept of assets revaluation is
of universal importance to both the accounting field and other social science
courses, Its effects on the firm’s financial position and ability to obtain
debt financial (financial leverage) makes on issue that cannot be neglected.
This research work is designed to
explain the concept of assets revaluation and assessment of borrowing capacity
(the need for assets revaluation,, the types of revaluation-their benefit and
setback, the legal and other regulations governing assets revaluation, the
factors affecting asset revaluation and assessment of borrowing capacity and
the effect of financial leverage and cash flow on the borrowing capacity of a
1.8 Limitation of the Study
The major limitation of this study is
the constraint of time and finance as the study was conducted amidst
tight schedule of both strict budget and time constrains in which many wants
compete for limited resources.
Asset Valuation: An asset valuation
shows that estimating market value of a financial asset or liability.
Borrowing Capacity: The ability of a firm to borrow funds
and pay back such at the stipulated time with interest without experiencing any
decline in cash flow.
Safety: This shows the bank consideration of
its lending decision.
Liquidity: Is the ability of the organization
to meet short term maturity obligations.
Fair Market Value: Is the cash price an item would sell
for between a willing buyer and willing seller assuming they both have
knowledge of the relevant facts and they have no compulsion to buy or sell.
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