3.2 Revaluation Method PDF

3.2 Revaluation Method Lesson Outline 1. Fair value v. Cost method 2. By Class 3. Revaluation a. Increase/Decrease b. Transfer of Revaluation Surplus c. Depreciable amount 1. Fair value v. Cost method...

3.2 Revaluation Method Lesson Outline 1. Fair value v. Cost method 2. By Class 3. Revaluation a. Increase/Decrease b. Transfer of Revaluation Surplus c. Depreciable amount 1. Fair value v. Cost method PPE IA Measurement after recognition if FV can be measured reliably Measurement after recognition, shall be carried at Revalued Amount Revalued Amount Fair value at the date of the revaluation Fair value at the date of the revaluation Less any subsequent accumulated depreciation Less any subsequent accumulated amortization Less subsequent accumulated impairment losses Less subsequent accumulated impairment losses Revaluations shall be made with su4icient regularity to ensure that the carrying amount does not di4er Revaluations shall be made with su4icient regularity to ensure that the carrying amount does not di4er materially from that which would be determined using fair value at the end of the reporting period. materially from that which would be determined using fair value at the end of the reporting period. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an **active market. **It is uncommon for an active market to exist for an intangible asset, although this may happen. For example, in some jurisdictions, an active market may exist for freely transferable taxi licenses, fishing licenses or production quotas. However, an active market cannot exist for brands, newspaper mastheads, music and film publishing rights, patents or trademarks, because each such asset is unique. Also, although intangible assets are bought and sold, contracts are negotiated between individual buyers and sellers, and transactions are relatively infrequent. For these reasons, the price paid for one asset may not provide su4icient evidence of the fair value of another. Moreover, prices are often not available to the public. 2. By Class If an item of PPE/IA is revalued, the entire class of PPE/IA to which that asset belongs shall be revalued. - IA: unless there is no active market for those assets A class of PPE is a grouping of assets of a similar nature and use in an entity’s operations - Land - Buildings - Machinery - Ships - Aircraft - Motor vehicles - Furniture and fixtures - OTice equipment - Bearer plants 3.2 Revaluation Method 3. Revaluation When an item is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways: Proportional Method the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated depreciation (amortization) at the date of the revaluation is adjusted to equal the di4erence between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses Elimination Method the accumulated depreciation (amortization) is eliminated against the gross carrying amount of the asset Increase/Decrease Increase Decrease OCI Increase in CA from revaluation P&L Decrease in CA from revaluation CR. Revaluation Surplus Revaluation Loss SFP (Equity) Accumulated Increase in CA OCI Decrease to the extent of any Revaluation Surplus from revaluation DR. Revaluation Surplus credit balance existing in the P&L Increase to the extent that it revaluation surplus Revaluation Gain reverses a revaluation decrease in respect of that asset (Revaluation Loss) of the same asset previously recognized in Revaluation Surplus if there is Revaluation Surplus balance P&L Revaluation Loss if there is no Revaluation Surplus Balance Revaluation Surplus if there is no Revaluation Loss Balance Revaluation Gain/Reversal of Revaluation Loss if there is Revaluation Loss Balance Transfer of Revaluation Surplus NOT made through P&L May be entirely transferred directly to RE On derecognition Some may be transferred As the asset is used Depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost 1. The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred directly to retained earnings when the asset is derecognized. This may involve transferring the whole of the surplus when the asset is retired or disposed of. 2. Some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the diTerence between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss. Depreciable amount Cost of an asset, or other amount substituted for cost Less residual value