IAS 16
Revaluation Model
Background
o Initial Recognition: revaluation model not applicable (i.e., always initially measure using
cost model)
o Subsequent Recognition: revaluation of asset should be performed at least annually by
an independent valuer
▪ Surplus recorded in OCI & accumulates in equity
▪ Deficit recorded in P/L but can surplus balance in OCI
o Realisation: generally, revaluation surplus realises upon sale of asset
▪ Surplus will be transferred to retained earnings upon realisation
o IAS 8: if changing subsequent measurement from cost model to revaluation model, then
it’s a change in accounting policy (realistically, the opposite change will never happen)
o Disclosure: info specifically disclosed for revalued amounts
▪ Effective date of revaluation
▪ If there was an independent valuer
▪ What the CA would be if the asset was measured using the cost model
▪ Restrictions of shareholder distribution
o Journals:
DR CR Narration
Asset (SFP) Revaluation Surplus (OCI) Revaluation of asset to FV
Revaluation Surplus (SCE) Retained Earnings (SCE) Realisation of revaluation
surplus on sale of asset
Revaluation Deficit (P/L) Asset (SFP) Revaluation of asset to FV
o NB! Revaluations are asset-specific & don’t apply to whole classes of assets
Income Tax Implications
o For non-depreciable assets that are revalued
▪ CA can only be recovered through sale
▪ Therefore, CGT rate will be used to calculate deferred tax when asset is revalued
at amount higher than base cost (cost price)
o Where transactions/events are recognised in OCI or Equity, then tax effect must also be
recognised in applicable place
o Where revaluation surplus is transferred to retained earnings upon realisation, amount is
net of deferred tax
o Tax Base = Cost Price
o CGT taxable portion (inclusion rate) = 80%
o Calculation = revaluation surplus x 80% x 27% (use applicable standard company tax
rate)
o Journals:
DR CR Narration
Revaluation Model
Background
o Initial Recognition: revaluation model not applicable (i.e., always initially measure using
cost model)
o Subsequent Recognition: revaluation of asset should be performed at least annually by
an independent valuer
▪ Surplus recorded in OCI & accumulates in equity
▪ Deficit recorded in P/L but can surplus balance in OCI
o Realisation: generally, revaluation surplus realises upon sale of asset
▪ Surplus will be transferred to retained earnings upon realisation
o IAS 8: if changing subsequent measurement from cost model to revaluation model, then
it’s a change in accounting policy (realistically, the opposite change will never happen)
o Disclosure: info specifically disclosed for revalued amounts
▪ Effective date of revaluation
▪ If there was an independent valuer
▪ What the CA would be if the asset was measured using the cost model
▪ Restrictions of shareholder distribution
o Journals:
DR CR Narration
Asset (SFP) Revaluation Surplus (OCI) Revaluation of asset to FV
Revaluation Surplus (SCE) Retained Earnings (SCE) Realisation of revaluation
surplus on sale of asset
Revaluation Deficit (P/L) Asset (SFP) Revaluation of asset to FV
o NB! Revaluations are asset-specific & don’t apply to whole classes of assets
Income Tax Implications
o For non-depreciable assets that are revalued
▪ CA can only be recovered through sale
▪ Therefore, CGT rate will be used to calculate deferred tax when asset is revalued
at amount higher than base cost (cost price)
o Where transactions/events are recognised in OCI or Equity, then tax effect must also be
recognised in applicable place
o Where revaluation surplus is transferred to retained earnings upon realisation, amount is
net of deferred tax
o Tax Base = Cost Price
o CGT taxable portion (inclusion rate) = 80%
o Calculation = revaluation surplus x 80% x 27% (use applicable standard company tax
rate)
o Journals:
DR CR Narration
