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    Revaluation Model

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    Marjorie Palma
    The document discusses IAS 16 and the revaluation model for property, plant, and equipment. Key points include: assets can be carried at a revalued amount if fair value can be reliably measured; revalued amount is fair value less subsequent depreciation and impairment; frequency of revaluation depends on changes in fair value; and revaluation surpluses are recorded in other comprehensive income and transferred to retained earnings as the asset is used.

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    Revaluation Model

    Uploaded by

    Marjorie Palma
    355 views36 pages
    The document discusses IAS 16 and the revaluation model for property, plant, and equipment. Key points include: assets can be carried at a revalued amount if fair value can be reliably measured; revalued amount is fair value less subsequent depreciation and impairment; frequency of revaluation depends on changes in fair value; and revaluation surpluses are recorded in other comprehensive income and transferred to retained earnings as the asset is used.

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    PPT Revaluation Model

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    The document discusses IAS 16 and the revaluation model for property, plant, and equipment. Key points include: assets can be carried at a revalued amount if fair value can be reliably measured; revalued amount is fair value less subsequent depreciation and impairment; frequency of revaluation depends on changes in fair value; and revaluation surpluses are recorded in other comprehensive income and transferred to retained earnings as the asset is used.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    355 views36 pages

    Revaluation Model

    Uploaded by

    Marjorie Palma
    The document discusses IAS 16 and the revaluation model for property, plant, and equipment. Key points include: assets can be carried at a revalued amount if fair value can be reliably measured; revalued amount is fair value less subsequent depreciation and impairment; frequency of revaluation depends on changes in fair value; and revaluation surpluses are recorded in other comprehensive income and transferred to retained earnings as the asset is used.

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    of 36

    IAS 16: Revaluation Model

    Acctg 3
    Revaluation
    • After recognition as an asset, an item of PPE whose fair value can
    be measured reliably can be carried at a revalued amount.
    • Revalued amount – FV at the date of the revaluation less any
    subsequent accumulated depreciation and subsequent
    accumulated impairment losses.

    A3: Revaluation
    Frequency of Valuation
    • Depends upon the changes in the FV of PPE being revalued.
    • When FV differs materially from the carrying amount, a further
    revaluation is necessary
    • PPEs with significant and volatile changes in FV – annual revaluation
    • Revaluation = 3 to 5 years (if insignificant)

    A3: Revaluation
    Revaluation of all items in an entire class
    • ENTIRE CLASS OF PROPERTY

    a. Land g. Furnitures and fixtures


    b. Land and buildings h. Office Equipment
    c. Machinery
    d. Ships
    e. Aircraft
    f. Motor vehicles

    A3: Revaluation
    Revaluation of all items in an entire class
    • Assets within a class of PPE are revalued simultaneously in order to
    AVOID SELECTIVE REVALUATION

    A3: Revaluation
    Basis of Revaluation
    • Fair Value – appraisal by professional qualified valuers
    • Depreciated replacement cost – shall be used if market value is not
    available
    - Sound value
    - Replacement cost less accumulated depreciation

    A3: Revaluation
    Cost 3,000,000
    Accumulated Depreciation 750,000
    A. Carrying amount 2,250,000

    A3: Revaluation
    Replacement cost 4,800,000
    Cost 3,000,000
    B. Appreciation 1,800,000

    A3: Revaluation
    AD, replacement cost 1,200,000
    AD, cost 750,000
    C. AD, appreciation 450,000

    A3: Revaluation
    Replacement cost 4,800,000
    AD 1,200,000
    D. Sound value 3,600,000

    A3: Revaluation
    Sound Value 3,600,000
    Carrying amount 2,250,000
    E. Revaluation Surplus 1,350,000

    A3: Revaluation
    Two approaches in recording the
    revaluation
    • Proportional approach – AD at revaluation date is restated
    proportionately with the change in the gross carrying amount of the
    asset
    • Elimination Approach – AD is eliminated against the gross carrying
    amount of the asset and the net amount restated to the revalued
    amount of the asset

    A3: Revaluation
    Proportional Approach

    Dr. Machinery 4,000,000


    Cr. Accumulated Depreciation 1,000,000
    Cr. Revaluation Surplus 3,000,000

    A3: Revaluation
    Elimination Approach

    Dr. Accumulated Depreciation 2,000,000


    Cr. Machinery 2,000,000

    A3: Revaluation
    Elimination Approach

    Dr. Machinery 3,000,000


    Cr. Revaluation Surplus 3,000,000

    A3: Revaluation
    Which method is preferred?
    • Proportional approach
    – preserves the gross and net amounts after revaluation

    A3: Revaluation
    Revaluation Surplus
    • Component of other comprehensive income
    • Allocated or realized over the remaining useful life of the asset and
    reclassified through RE
    • May be transferred directly to RE when the surplus is realized

    A3: Revaluation
    1. Entry on revaluation date

    Dr. Machinery 4,000,000


    Cr. Accumulated Depreciation 1,000,000
    Cr. Revaluation Surplus 3,000,000

    A3: Revaluation
    2. Annual depreciation subsequent to the
    revaluation (JE #1)

    Dr. Depreciation 600,000


    Cr. Accumulated Depreciation 600,000

    A3: Revaluation
    2. Annual depreciation subsequent to the
    revaluation (JE #2)

    Dr. Revaluation Surplus 200,000


    Cr. Retained Earnings 200,000

    A3: Revaluation
    Cost Replacement Cost
    Machinery 8,500,000 12,400,000
    Residual value 500,000 400,000
    Accumulated depreciation 3,200,000
    Old UL = 10 yrs; New UL = 12 yrs fr the date of acq’n

    Cost Replacement Cost Appreciation


    Machinery 8,500,000 12,400,000 3,900,000
    Residual Value 400,000 400,000 0
    Depreciable Amount 8,100,000 12,000,000 3,900,000
    Accumulated Depreciation - 40% 3,200,000 4,800,000 1,600,000
    Remaining depreciable amount 4,900,000 7,200,000 2,300,000

    A3: Revaluation
    Cost Replacement Cost Appreciation
    Machinery 8,500,000 12,400,000 3,900,000
    Residual Value 400,000 400,000 0
    Depreciable Amount 8,100,000 12,000,000 3,900,000
    Accumulated Depreciation - 40% 3,200,000 4,800,000 1,600,000
    Remaining depreciable amount 4,900,000 7,200,000 2,300,000
    Old UL = 10 yrs; New UL = 12 yrs fr the date of acq’n

    1. To record revaluation

    Dr. Machinery 3,900,000


    Cr. Accumulated Depreciation 1,600,000
    Cr. Revaluation Surplus 2,300,000

    A3: Revaluation
    Cost Replacement Cost Appreciation
    Machinery 8,500,000 12,400,000 3,900,000
    Residual Value 400,000 400,000 0
    Depreciable Amount 8,100,000 12,000,000 3,900,000
    Accumulated Depreciation - 40% 3,200,000 4,800,000 1,600,000
    Remaining depreciable amount 4,900,000 7,200,000 2,300,000
    Old UL = 10 yrs; New UL = 12 yrs fr the date of acq’n

    2. To record depreciation

    Dr. Depreciation 900,000


    Cr. Accumulated Depreciation 900,000

    A3: Revaluation
    Cost Replacement Cost Appreciation
    Machinery 8,500,000 12,400,000 3,900,000
    Residual Value 400,000 400,000 0
    Depreciable Amount 8,100,000 12,000,000 3,900,000
    Accumulated Depreciation - 40% 3,200,000 4,800,000 1,600,000
    Remaining depreciable amount 4,900,000 7,200,000 2,300,000
    Old UL = 10 yrs; New UL = 12 yrs fr the date of acq’n

    3. To record piecemeal realization on revaluation


    surplus

    Dr. Revaluation Surplus 287,500


    Cr. Retained Earnings 287,500

    A3: Revaluation
    Reversal of revaluation surplus
    • Revaluation decrease – charged directly against any revaluation
    surplus to the extent that the decrease is a reversal of a previous
    revaluation and the balance is charged to expense

    A3: Revaluation
    2020:

    Dr. Equipment 3,000,000


    Cr. Accumulated Depreciation 1,200,000
    Cr. Revaluation Surplus 1,800,000
    A3: Revaluation
    2020:

    Dr. Depreciation 800,000


    Cr. Accumulated Depreciation 800,000

    Dr. Revaluation Surplus 300,000


    Cr. Retained Earnings 300,000
    A3: Revaluation
    2021:

    Dr. Depreciation 800,000


    Cr. Accumulated Depreciation 800,000

    Dr. Revaluation Surplus 300,000


    Cr. Retained Earnings 300,000
    A3: Revaluation
    2022:

    Dr. Depreciation 800,000


    Cr. Accumulated Depreciation 800,000

    Dr. Revaluation Surplus 300,000


    Cr. Retained Earnings 300,000
    A3: Revaluation
    Per book Adjusted Decrease
    Dr. Accumulated Depreciation 3150K
    Replacement Cost 8,000,000 3,500,000 4,500,000 Dr. Revaluation Surplus 900K
    Accumulated Depreciation - 70% 5,600,000 2,450,000 3,150,000 Dr. Revaluation Loss 450K
    Depreciated Replacement Cost 2,400,000 1,050,000 1,350,000 Cr. Equipment 4500K

    A3: Revaluation
    Sale of Revalued Asset
    • All accounts related from the sale must be closed in order to
    determine the gain or loss on sale
    • Selling price vs Carrying Amount of Revalued Asset – gain/loss

    A3: Revaluation
    1. To record the sale

    Dr. Cash 22,000,000


    Dr. Accumulated Depreciation 30,000,000
    Cr. Building 50,000,000
    Cr. Gain on sale 2,000,000

    A3: Revaluation
    2. To record the realization of revaluation surplus

    Dr. Revaluation Surplus 4,000,000


    Cr. Retained Earnings 4,000,000

    A3: Revaluation
    Disclosures related to revaluation
    a. Effective date of revaluation
    b. Whether an independent valuer was involved
    c. Method and significant assumptions applied in estimating fair
    value
    d. Extent to which the fair value was determined directly by
    reference to observable prices in an active market or recent
    market transactions on arm’s length terms or was estimated using
    other valuation technique

    A3: Revaluation
    Disclosures related to revaluation
    e. Historical cost and carrying amount of each class of revalued
    property, plant and equipment
    f. Revaluation surplus, indicating the movement for the period and
    any restrictions on the distribution of the balance to shareholders

    A3: Revaluation
    “It is the actual work that you
    choose to do everyday that
    makes you successful.”

    - Anonymous

    A17: Revaluation

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