CHAPTER
BLUE NOTES
24 S
L
Revaluation
Consists of: 24
preparation of a detailed listing of the items of property, plant, and equipment at appraisal date,
detailed inspection of each unit of property,
pricing the property items ordinarily at fair value of replacement cost,
determination of accumulated depreciation,
calculation of the depreciated replacement cost
Revaluation Model
Property, plant, and equipment are carried at revalued amount.
Revalued amount :
FV at the date of acquisition
Less: Subsequent accumulated depreciation
Subsequent accumulated impairment loss
Revaluation should be done in the entire class of PPE to which the asset to be revalued belongs.
Frequency of Revaluation
When a fair value of a revalued asset differs materially from its carrying amount a further revaluation is
necessary.
If there are significant and volatile movements in the fair value of the asset, annual revaluation is necessary.
If there are insignificant movements in the fair value, a revaluation every 3-5 years may be sufficient.
Basis of Revaluation
FAIR VALUE DEPRECIATED REPLACEMENT COST
Usually equal to market value. Shall be used when fair value is
not available.
Determined by appraisal normally undertaken by Sound Value of the asset.
professional qualified valuers.
Definition Of Terms
A. Revalued amount
Fair Value or Depreciated Replacement Cost of the item of PPE.
B. Revaluation Surplus
Difference between the Revalued Amount and the Book Value of the PPE.
Also known as revaluation increment.
C. Appreciation or revaluation increase
Excess of revalued amount over the historical cost
Appreciation minus the corresponding accumulated depreciation equals the net appreciation or
revaluation surplus.
Practical Accounting 1 Theory of Accounts
Chapter 24 – Revaluation USL Blue Notes 91
Approaches In Recording The Revaluation
The Accumulated Depreciation is:
Restated proportionately with the change in the gross carrying amount of the asset so that the carrying
amount equals the revalued amount after revaluation.
o Eliminated against the gross carrying amount of the asset and the net amount restated to the
revalued amount of the asset.
Revaluation Surplus
Component of Other Comprehensive Income (OCI)
May be transferred to Retained Earnings when the surplus is realized.
Realization of Revaluation Surplus:
The whole surplus may be realized on the retirement or disposal of the asset.
If the revalued asset is being depreciated, part of the surplus is being realized as the asset is used. The
revaluation surplus is allocated or realized over the remaining life of the asset in order to get the
piecemeal realization.
Reversal of a Revaluation Increase/Decrease
A. Reversal of Revaluation Increase
Any decrease in the carrying amount of the asset as a result of revaluation shall be recognized as expense.
A revaluation decrease shall be 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.
B. Reversal of Revaluation Decrease
Any increase in the carrying amount of the asset as a result of revaluation shall be credited to revaluation
surplus.
A revaluation increase shall be recognized as income to the extent that it reverses a revaluation decrease
previously recognized as expense.
Theory of Accounts Practical Accounting 1
