PPE - revaluation

• Revaluation


  Adjusting the carrying amount of an asset to its fair value
• This chapter deals with accounting for property, plant and equipment (PPE) using the revaluation model
• Revaluation model


  • An item of PPE is carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses
• An entity can choose the revaluation model for items of PPE whose fair value can be measured reliably
• Carrying Amount


  Fair Value
• Frequency of Revaluation

  1. Immediate revaluation when fair value differs materially from carrying amount

  2. Annual revaluation for items with significant and volatile changes in fair value

  3. Revaluation every 3-5 years for items with only significant changes in fair value
• Prior to PAS 16, 'regular' revaluation was not required
• One Class, One Model

  • If an item of PPE is revalued, the entire class of PPE to which that asset belongs shall be revalued
  • Items within a class of PPE are revalued simultaneously
• Revaluation increase


  Fair value is higher than carrying amount
• Revaluation decrease


  Fair value is lower than carrying amount
• Accounting for Revaluation Increase

  1. Recognized in OCI and accumulated in equity under revaluation surplus

  2. Recognized in profit or loss to the extent it reverses a previous revaluation decrease recognized in profit or loss
• Accounting for Revaluation Decrease

  1. Recognized as expense in profit or loss if no existing revaluation surplus

  2. Recognized in OCI to the extent of any credit balance existing in the revaluation surplus
• Accumulated Impairment Losses account


  Used to ensure the correct split of the amount to be recognized in profit or loss and when future revaluation increases occur
• Accounting for impairment of non-financial assets is discussed in detail in Chapter 10
• Revaluation decrease

  1. Recognized in OCI to the extent of any credit balance existing in the revaluation surplus in respect of that asset

  2. Decrease recognized in OCI reduces the amount accumulated in equity under the heading of revaluation surplus
• Illustration - Revaluation Increase and Decrease

  • Land A: Revaluation increase of P2,000,000
  • Land B: Revaluation decrease of P1,500,000
• The revaluation increase and decrease should be accounted for separately even if the pieces of land belong to the same class
• The revaluation decrease should not be offset against the revaluation increase
• Carrying amount


  The amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses
• Revaluation of PPE

  • Affects the gross carrying amount and accumulated depreciation
  • Gross carrying amount is adjusted in a manner consistent with the revaluation of the carrying amount
  • Accumulated depreciation is either eliminated against the gross carrying amount or adjusted to equal the restated gross carrying amount
• Illustration - Adjusting the Carrying Amount of Revalued PPE


  • Building acquired on Jan. 1, 2017 for P10 million, useful life of 25 years, no residual value, straight-line depreciation, revalued to P10,400,000 on Dec. 31, 2021
• Fair value


  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
• Fair value measurement for non-financial assets


  • Takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use
• Fair value is normally determined by an independent valuer
• Depreciated Replacement Cost

  Measures the entry price for an asset, can be used to measure the fair value of an item of PPE only when the entry price equals a current exit price
• When using depreciated replacement cost, the entity should ensure that the resulting measurement is consistent with the requirements of PFRS 13 for measuring fair value