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    Chapter 29 Revaluation

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    Crizel Dario
    The document discusses accounting policies and procedures for revaluation of property, plant, and equipment (PPE). It outlines measurement models, frequency of revaluation, basis of revaluation, accounting treatment, and disclosure requirements for revalued PPE.

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    © All Rights Reserved
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    Chapter 29 Revaluation

    Uploaded by

    Crizel Dario
    290 views14 pages
    The document discusses accounting policies and procedures for revaluation of property, plant, and equipment (PPE). It outlines measurement models, frequency of revaluation, basis of revaluation, accounting treatment, and disclosure requirements for revalued PPE.

    Original Title

    Chapter-29-Revaluation (1)

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    The document discusses accounting policies and procedures for revaluation of property, plant, and equipment (PPE). It outlines measurement models, frequency of revaluation, basis of revaluation, accounting treatment, and disclosure requirements for revalued PPE.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    290 views14 pages

    Chapter 29 Revaluation

    Uploaded by

    Crizel Dario
    The document discusses accounting policies and procedures for revaluation of property, plant, and equipment (PPE). It outlines measurement models, frequency of revaluation, basis of revaluation, accounting treatment, and disclosure requirements for revalued PPE.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 14

    REVALUATION

    Measurement of PPE
    • Initially, an item of PPE that qualifies for recognition shall be
    measured at cost.

    • After recognition, an entity shall choose either the COST or


    REVALUATION model as an accounting policy and shall apply that
    policy to the entire class of PPE.
    COST MODEL
    REVALUATION MODEL
    Frequency of Revaluation
    • When the fair value of a revalued asset differs materially from the
    carrying amount, a further revaluation is necessary.

    • Some PPE may experience significant and volatile changes in fair


    value thus necessitating annual revaluation.

    • Such frequent or annual revaluations are unnecessary for PPE with


    only insignificant changes in fair value. Instead, revaluation every 3 to
    5 years may be sufficient.
    Revaluation of all items in an entire class
    • When PPE are revalued, the entire class of PPE should be revalued.

    • A class of PPE is a grouping of assets of a similar nature and use in an


    entity’s operations.

    • Example: Land, Building, Machinery, Motor Vehicles, Furniture &


    Fixtures, Office Equipment, Ships, Aircrafts
    Basis of Revaluation

    Fair Value – The fair Depreciated


    value is determined by Replacement Cost –
    appraisal normally Where market value is not
    undertaken by professional available, depreciated cost
    qualified valuers shall be used.
    Definition of Terms
    • Revalued Amount is the fair value or depreciated replacement cost of
    the item of PPE.

    • 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 of the PPE


    minus the corresponding accumulated depreciation. This amount is
    actually the sound value of the asset.
    Definition of Terms
    • Replacement Cost is the current “purchase price” of the PPE.

    • Carrying Amount is equal to historical cost minus the corresponding


    accumulated depreciation

    • Revaluation Surplus is equal to the fair value or depreciated


    replacement cost minus the carrying amount of the PPE. This is also
    known as revaluation increment.
    Definition of Terms
    • Appreciation or Revaluation increase is the excess of the replacement
    cost over the historical cost.

    • Appreciation minus the corresponding accumulated depreciation


    equals the net appreciation or revaluation surplus.
    Two approaches in recording revaluation
    • Proportional approach – The accumulated depreciation at the date of
    revaluation is restated proportionately with the change in the gross
    carrying amount of the asset so that the carrying amount of the asset
    after revaluation equals the revalued amount.

    • Elimination Approach – The accumulated depreciation is eliminated


    against the gross carrying amount of the asset and the net amount
    restated to the revalued amount of the asset.
    Accounting Treatment of Revaluation
    Surplus
    • Component of other comprehensive income.

    • The revaluation surplus is allocated or realized over the remaining


    useful life of the asset and classified through retained earnings.

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


    asset.
    Disclosures related to revaluation
    • The effective date of revaluation
    • Whether an independent valuer was involved.
    • Method and significant assumptions applied in estimated fair
    value
    • The extent to which the fair value was determined directly by
    reference to observable prices in an active market or recent
    market transactions on an arm’s length terms or was
    estimated using other valuation techniques.
    Disclosures related to revaluation
    • Historical cost and carrying amount of each class of revalued
    PPE

    • Revaluation Surplus, indicating the movement for the period


    and any restrictions on the distribution of the balance to
    shareholders.

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