IAS 16 PROPERTY, PLANT AND

EQUIPMENT
Shayan Zahid
BBA 2K7
NUST Business School
WHY REVALUE ASSETS?
 To show the true rate of return on capital employed.
 To show the fair market value of assets which have considerably
appreciated since their purchase such as land and buildings.
 To negotiate fair price for the assets of the company before merger
with or acquisition by another company.
 To get fair market value of assets, in case of sale and leaseback
transaction.
 Sale of an individual asset or group of assets.
 In financial firms, revaluation reserves are required for regulatory
reasons. They are included when calculating a firm's funds to give
a fairer view of resources. Only a portion of the firm's total funds
(usually about 20%) can be loaned or in the hands of any one
counterparty at any one time(Large Exposure Regulations).
 To decrease the 'leverage ratio' (the ratio of debt to equity).
IAS 16

 Historical Cost Model

 Revaluation Model:

Requires all assets in the same class to be revalued. You

cannot cherry pick assets to revalue.
EXAMPLE
 A company revalued its property on 1 April 2009 to
$20m ($8m for the land). The property originally cost
$10m ($2m for the land) 10 years ago. The original
useful economic life of 40 years is unchanged. The
company's policy is to make a transfer to realised profits
in respect of excess depreciation.
 How will the property be accounted for in the year ended
31 March 2010?
(Revaluation Surplus)
REVALUATION MODEL
 The first step is adjusting the asset’s value
Dr: Assets Cost
Cr: Revaluation Surplus
 The second step involves dealing with accumulated
depreciation which has been charged on asset’s previous
cost
Dr: Accumulated Depreciation
Cr: Revaluation Surplus
(Revaluation Surplus)
 The third thing to do is deal with current years
depreciation according to depreciation policy on the
revalued asset.
Dr: Depreciation
Cr: Accumulated Depreciation
LOSS ON REVALUATION
 A revaluation loss should be charged against any related
revaluation surplus to the extent that the decrease does
not exceed the amount held in revaluation reserve. Any
additional loss must be charged in the income statement.
The revaluation gain or loss must be disclosed in both
the statement of changes in equity and in other
comprehensive income.
Dr Revaluation Surplus
Dr Income Statement
Cr Non-current asset
The carrying value of Zen's property at the end of the
year amounted to $108,000. On this date the property
was revalued and was deemed to have a fair value of
$95,000. The balance on the revaluation reserve relating
to the original gain of the property was $10,000.
REFERENCES
 http://www.accaglobal.com/students/acca/paperf7/syllab
us_c/3358885
 http://www.accountancystudents.co.uk/news/read/to_rev
alue_or_not_revalue/
 http://en.wikipedia.org/wiki/Revaluation_of_fixed_asset
s