Accounting for Asset Revaluation
Revaluation
Frequency
The frequency of revaluation depends upon the changes in the fair
value of the property, plant, and equipment (PPE) being revalued.
Revaluation should be done when there are material changes in the fair
value.
If the changes are immaterial, a frequency of 3-5 years may be
sufficient.
When PPE are revalued, the entire class of PPE should be revalued.
Measurement
Initially, PPE is measured at cost.
After recognition, the entity shall choose either the cost or revaluation
model.
Revaluation must be made with sufficient regularity, and the carrying
amount must not differ materially from the fair value at the end of the
reporting period.
Basis
The revalued amount is based on:
Fair value, determined by appraisal or professional qualified valuers.
Depreciated replacement cost, if the market value is not available.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date.
Depreciated replacement cost is the replacement cost (purchase price)
of PPE minus the corresponding accumulated depreciation (sound
value).
Carrying amount is the historical cost minus accumulated depreciation.
Revaluation surplus = fair value or depreciated replacement cost
(sound value) minus carrying amount of PPE. This is also known as the
revaluation increment.
Appreciation (revaluation increase) is the excess of the revalued
amount over the historical cost. Appreciation minus the corresponding
accumulated depreciation equals the net appreciation or revaluation
surplus.
General Illustration
Machinery on the date of revaluation:
Cost: 3,000,000
Replacement Cost: 4,800,000
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
