REVALUATION
Property, plant and equipment Carrying Amount
Initial recognition: Cost Model Equal to the historical cost minus the
Subsequent recognition: Cost Model corresponding accumulated
or Revaluation model depreciation.
Appreciation/ Revaluation Increase
Cost Model Formula The excess of the replacement cost
= Cost – Accumulated Depreciation – Accumulated over the historical cost.
impairment losses.
Revaluation Model Formula Net Appreciation (RS)
= Fair value – subsequent depreciation – subsequent Equal to the appreciation minus the
impairment losses.
corresponding accumulated
depreciation.
FREQUENCY OF REVALUATION
IFRS: no clear-cut rule REVALUATION SURPLUS
Depends on the changes of the fair Equal to the fair value or depreciated
value of the PPE. replacement cost (SV) minus the
When the fair value of the PPE being carrying amount of the Property,
revalued differs materially than its carrying plant and equipment
amount, a revaluation is necessary. If not Revaluation increment.
significant, no need. Formula: [SV – CA = RS]
Some PPE have volatile and significant The revaluation surplus will be included in
changes in FV hence necessitating annual the other comprehensive income. When the
revaluation. revaluation surplus is realized, will be
transferred to the retained earnings.
Three to five years of revaluation may be
sufficient – but not mandated by the IFRS. The whole surplus of the asset may be
realized in either disposal or retirement.
REVALUATION OF ALL ITEMS IN AN
ENTIRE CLASS If the revalued asset is being depreciated,
When PPR is being revalued, the part of the surplus will be realized as the
entire class should be as well. asset is used.
Class of PPE The Property, plant and equipment will use
Groupings of assets of a similar the revalued amount for presentation.
nature and use in an entity’s
operations. ORIGINAL USEFUL LIFE OF MACHINERY
Examples: FORMULA:
Land Aircraft (To be used when the original useful life of an asset is
not given)
Land and Buildings Motor Vehicles
Accumulated Depreciation – cost
Machinery Office Equipment
xxx
Ships Furniture and
Divide by age of the asset
Fixs.
xxx
Annual Depreciation
BASIS OF REVALUATION
xxx
1. Fair value
2. Depreciable replacement cost (SV)
Machinery at cost xxx
o Used when the market value is
Divide by annual depreciation on cost
not available.
xxx
o The replacement cost or the
Original useful life xxx
current purchase price minus
the corresponding
TWO APPROACHES IN REVALUATION
accumulated depreciation.
1. Proportional approach
o AKA Sound value
a. Accumulated depreciation at
date of revaluation is restated
proportionately with the ANNUAL DEPRECIATION SUBSEQUENT
change in the gross carrying OT REVALUATION
amount.
2. Elimination approach Depreciation xxx
a. Accumulated depreciated is Accumulated Depreciation
eliminated against the gross xxx
carrying amount of the asset.
Depreciation on Cost (CA/ useful life)
xxx
Depreciation on appreciation (RS/ Life) xxx
PROPORTIONAL APPROACH
The preferrable method as it PIECEMEAL REALIZATION OF THE
preserves the gross and net amounts REVALUATION SURPLUS
after revaluation. Revaluation surplus xxx
Retained earnings xxx
(Standard formula) (Revaluation surplus/ useful life)
Replaceme Appreciati
Cost
nt cost on
CHANGE IN LIFE AND RESIDUAL VALUE
Asset xxx xxx xxx
Accu. Dep xxx xxx xxx
CA/SV/RS xxx xxx xx Historical cost
xxx
1. Determine how much is the asset Residual Value
depreciated (%) (xxx)
a. Annual depreciation/ Carrying Original depreciable amount
amount xxxa
2. Multiply the percentage to the gross
carrying amount of the asset to Annual depreciation on cost
determine the accumulated xxx
depreciation on the replacement (Original depreciable amount/ life)
cost. Age of the asset X years
(Acc. Dep. / Annual Dep)
Journal entry: Percentage of accumulated Dep XX%
Asset xxx (Age of the asset/ useful life)
Accumulated Depreciation
xxx Or
Revaluation surplus
xxx Proportion of the accumulated depreciation
to the original depreciable amount
ELIMINATION APPROACH
Journal entry: (Accumulated Depreciation/ useful life) xx%
Accumulated Depreciation xxx
Asset xxx
(to eliminate the Accumulated Depreciation) REVERSAL OF A REVALUATION
SURPLUS
Asset xxx A revaluation decrease shall be
Revaluation surplus charged directly against revaluation surplus
xxx and the balance is charged to expense.
(To adjust the asset to the sound value)
DISCLOSURES RELATERD TO
Sound value xxx REVALUATION
Carrying amount of the asset 1. Effective date of revaluation
xxx 2. If an independent valuer was
Revaluation Surplus involved
xxx
3. Method and assumptions applied in
estimating fair value.
4. Whether fair value was determined
directly by reference to observable
prices in an active market or recent
market transactions using other
valuation techniques.
5. Historical cost and carrying amount
of each class of revalued property,
plant and equipment.
6. Revaluation surplus, indicating the
movement for the period and any
restrictions on the distribution of the
balance to shareholders.