Revaluation Impairment

Revaluation of PPE
- Fair value at the date of revaluation less any subsequent accumulated depreciation and
accumulated impairment losses.
Basis for Revaluation (order of priority)

1. Fair Value
2. Depreciated Replacement Cost, ONLY when the fair value is NOT available (SOUND VALUE).
Ravalued amount – is the fair value of replacement cost less accumulated depreciation (Sound
value).
Revaluation Surplus (RS)
Cost (a) Replacement Cost (b) Appreciation (c = b-a)

PPE xx xx xx **
*Accumulated Dep(%) (xx) (xx) (xx)***
CA/SV/RS xx xx xx ****
Residual Value (xx)
Revalued DA xx xx
Divide: remaining life xx xx
Revalued Depex/Realized RS xx xx
Fair Value / Sound Value xx

Carrying before revaluation (xx)
Revaluation Surplus xx
* Original Cost xx
Original Salvage Value (xx)
Original Depreciable Amount xx
Divide by: Original useful life xx
Original Depex xx
Multiply: # of yrs used before revaluation xx
Accumulated Depreciation xx
Divide by: Original Depreciable amount xx
Percentage of AD xx
Entry when asset is revalued:

**Asset (PPE) xx
***Accumulated Depreciation xx
****Revaluation Surplus xx
Revaluation Surplus – is a component of Other Comprehensive Income (OCI).

- may be transferred directly to retained earnings when surplus is realized
(this refers to LAND)
- If revalued asset is depreciated, part of the surplus is being realized as

the asset used (Depreciable Asset). Revaluation surplus is realized based
on the remaining useful life of the revalued asset. = Revaluation surplus /
Remaining Useful life or changed useful life
- The whole surplus may be realized on the retirement or disposal of

Asset.
Entry when revaluation surplus is realized:
Revaluation Surplus xx
Retained earnings xx
Depreciation Expense after revaluation
Revalued assets are still subject to depreciation.
Fair Value or Sound Value xx

Salvage Value (xx)
*Revalued Depreciable Amount xx
Divide by: Remaining useful life or Changed life xx
Depreciation expense xx
* Revalued Depreciable Amount is the base amount for depreciation of all methods of depreciation
except for DECLINING BALANCE METHOD.
Entry of depreciation:
Depreciation Expense xx
Accumulated Depreciation xx
If the problem has different residual values before the revaluation and on the date of revaluation. The
original residual value of cost is IGNORED, but it is considered in computing the ORIGINAL accumulated
depreciation.
REVERSAL OF REVALUATION SURPLUS
If there is Revaluation Loss, charge the loss first to previous revaluation surplus if any, then the excess
of loss over surplus is recognized as EXPENSE.
Sale of Revalued Asset:
Sale Price xx
Revalued CA, exclude revaluation surplus (xx)
Gain (loss) on sale xx
Entries upon sale of revalued asset:
Cash xx
Accumulated Dep xx
Loss on sale xx
PPE – Asset xx
Gain on Sale xx
Revaluation surplus xx
Retained earnings xx
IMPAIRMENT OF ASSETS – PAS 36
Basic Principle: An asset shall not be carried at above the recoverable amount.
An entity shall write down the carrying amount of an asset to the recoverable amount if the
carrying amount is not recoverable in full.
If the Carrying Amount is higher than the recoverable amount, the asset is judged to have
suffered an impairment loss.
A. Indication of Impairment
1. External Sources
2. Internal Sources
B. Measurement of Recoverable Amount
Carrying Amount of Asset > *Recoverable Amount = Impairment Loss
* Recoverable Amount = whichever is HIGHER, between FAIR VALUE LESS COST OF DISPOSAL
(FVLCD) and VALUE IN USE.
Cost of disposal / cost to sell – do not include finance cost and income tax expense.
Value in use – present value or discounted value of future net cash flows = inflows minus outflows
C. Recognition of Impairment Loss
Entry for Impairment loss:
Impairment Loss xx
Accumulated Depreciation - Asset xx
Reversal of Impairment Loss
PAS 36, p 114, provides that an impairment loss recognized for an asset in prior years
shall be reversed if there has been change in the estimate of the recoverable amount.
In other words, if the recoverable amount of an asset that has been previously impaired
turns out to be higher than the current carrying amount, the carrying amount of the shall be
increased to a new recoverable amount.
However, PAS 36, par 117, provides that ‘the increased carrying amount of an asset due
to a reversal of an impairment loss shall not exceed the carrying amount that would have
been determined, had no impairment loss shall be recognized for the asset in prior years.
CA of asset as if no Impairment or New RA, whichever is lower xx

Carrying amount of Asset with impairment (xx)
Gain on reversal of Impairment xx
Entry on reversal of impairment loss:
Accumulated Depreciation – Asset xx

Gain on reversal of impairment loss xx
CASH GENERATING UNIT (CGU)
- Smallest identifiable group of assets that generate cash inflows from continuing use that are
largely independent of the cash inflows from other assets or group of assets.
- Most often, the recoverable amount of CGU is equal to the value in use because the unit is
not to be disposed.
Impairment Loss for CGU shall be allocated to the Assets in the following order of priority:
a. GOODWILL , if any
b. To all other NON-CASH ASSETS of unit pro rated based on their CARRYING AMOUNT.
Note: Carrying amount of the asset shall not be reduced below the highest of fair value less
cost of disposal, value in use or zero. The amount of impairment loss that would otherwise have
been allocated to the Asset shall be allocated pro-rata to the other assets of CGU, excluding
goodwill.
Carrying Amount of CGU excludes Liability, but includes the Goodwill. CA of CGU includes the
CA of only those assets that can be attributed directly or allocated on a reasonable and
consistent basis.

Revaluation Impairment

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Revaluation Impairment

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Revaluation of PPE

Basis for Revaluation (order of priority)

Revaluation Surplus (RS)

Cost (a) Replacement Cost (b) Appreciation (c = b-a)

Fair Value / Sound Value xx

Entry when asset is revalued:

Revaluation Surplus – is a component of Other Comprehensive Income (OCI).

- If revalued asset is depreciated, part of the surplus is being realized as

- The whole surplus may be realized on the retirement or disposal of

Entry when revaluation surplus is realized:

Depreciation Expense after revaluation

Revalued assets are still subject to depreciation.

Fair Value or Sound Value xx

REVERSAL OF REVALUATION SURPLUS

Sale of Revalued Asset:

Entries upon sale of revalued asset:

B. Measurement of Recoverable Amount

Carrying Amount of Asset > *Recoverable Amount = Impairment Loss

C. Recognition of Impairment Loss

Entry for Impairment loss:

CA of asset as if no Impairment or New RA, whichever is lower xx

Entry on reversal of impairment loss:

Accumulated Depreciation – Asset xx

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