Acctg.
202-a PPE - Revaluation
Subsequent Measurement
1. Cost Model
Cost – Accumulated Depreciation – impairment losses = (CA)
2. Revaluation Model ***
FV at the date of Revaluation – Subsequent Acc. Depreciation – Subsequent Impairment Losses = CA
Revaluation Model
FV changes are accounted for in subsequently valuing items of PPE.
If the policy is elected for a class of PPE, assets under the class whose fair values can be measured reliably shall
be carried at REVALUED AMOUNT.
The frequency of revaluation may be:
1. Annual revaluation of PPE items that experience significant and volatile changes in fair value.
2. Every 3 or five years for PPE with only insignificant changes in fair value.
If an item is revalued, the ENTIRE CLASS of assets to which that asset belongs should be revalued.
When an item of PPE is revalued, any accumulated depreciation at the date of revaluation is treated in one of
the following ways:
1. (Proportional Approach) Restated proportionately with the change in the gross carrying amount of the assets
so that the carrying amount of the asset after revaluation equals its revalued amount. This method is often
used when an asset is revalued by means of applying an index to its deprecated replacement cost.
Historical Cost Replacement Cost Appreciation
Less: Acc. Depreciation Less: Assumed Acc. Depreciation Less: Increase in Acc. Depreciation
Carrying Amount Sound Value or Depreciated Revaluation Surplus
Replacement cost
PPE XXX
Acc. Depreciation XXX
Revaluation Surplus XXX
2. (Elimination Approach) Eliminated against the gross carrying amount of the asset and the net amount
restated to the revalued amount of the asset.
Accumulated Depreciation XXX PPE XXX
PPE XXX Revaluation Surplus XXX
Revaluation Surplus
This is an OCI account to be presented under SHE section.
The standard requires revaluation surplus to be presented net of tax effects.
For depreciable assets, the revaluation surplus, net of tax, is periodically transferred to RE systematically following
the same pattern that the asset is depreciated.
For non-depreciable assets, revaluation surplus is transferred to RE only when the asset is sold.
Reversal of Revaluation
If the previous revaluation increase is reversed due to changes in the fair value, the decrease is first closed to any
existing revaluation surplus in the books. Any excess is debited to impairment loss and should be recognized in
profit or loss.
If a previous impairment loss is reversed, the increase is first credited to gain on reversal of impairment as part of
profit or loss to the extent of the prior impairment loss. Any excess if credited to revaluation surplus (OCI).
Straight Problem 1
X Co. uses the revaluation model for its land and buildings. The company acquired building A on January 1, 2020 at a
cost of P20,000,000. The building has an estimated life of 6 years and residual value of P2,000,000. The building was
revalued on January 1, 2023. The revaluation revealed replacement cost of P30,000,000, residual value of P4,000,000 and
revised life of 8 years from the date of acquisition. Compute revaluation surplus on December 31, 2023 with applicable
tax rate of 30%.
Straight Problem 2
On January 1, 2020, X Co. purchased an asset fo P2,500,000 with an estimated useful life of 10 years with no salvage value.
Straight line method of depreciation is to be used. On January 1, 2022, the company has reliably determined that the
recoverable amount of the asset is P1,600,000. On January 1, 2024, the asset has a recoverable amount of P1,860,000. If
the company uses the revaluation model to measure long lived assets, what are the amounts to be reported in the profit
or loss and SHE as revaluation reserve, respectively, on December 31, 2024? Ignore taxes.
MDDano, CPA
