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    Cost.: A Class of Property, Plant and Equipment Is A Grouping of Assets of A Similar Nature and Use in An

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    Chapter 32

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    Cost.: A Class of Property, Plant and Equipment Is A Grouping of Assets of A Similar Nature and Use in An

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    Chapter 32

    Revaluation

    1. Explain revaluation of property, plant and equipment.


     Initially, an item of property, plant and equipment that qualifies for recognition shall be measured at
    cost.
     After initial recognition, an entity shall choose either the cost model or the revaluation model as its
    accounting policy and shall apply that policy to an entire class of property, plant and equipment.
    A class of property, plant and equipment is a grouping of assets of a similar nature and use in an
    entity’s operations.
    Examples of separate classes are land, land and buildings, machinery, ships, aircrafts, motor vehicles,
    furniture and fixtures, and office equipment.

    2. What is the basis of revaluation of property, plant and equipment?


     Fair value – the fair value is determined by appraisal normally undertaken by professional qualified
    valuers.
     Depreciated replacement cost – where fair value is not available, depreciated replacement cost shall
    be used.
    3. What is the treatment of the accumulated depreciation at the date of revaluation?
    There are two approaches in recording the revaluation, namely:
     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.
    Simply described, this is the “proportional 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.
    This procedure may be called the “elimination approach”

    4. What is the treatment of the revaluation surplus?


     When an asset’s carrying amount is increased as a result of the revaluation, the increase shall be
    credited to revaluation surplus as a component of other comprehensive income.
     The revaluation surplus may be transferred directly to retained earnings when the surplus is
    realized.
     The whole surplus may be realized on the retirement or disposal of the asset.
     However, 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.

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