Subsequent

11 Measurement
SUBSEQUENT
MEASUREMENT

Choice between:
1. COST MODEL – cost less accumulated depreciation and
impairment losses
2. REVALUATION MODEL – revalued amount

Election must be applied to an entire class of PPE

64
REVALUATION
MODEL

Revalued Amount
- FV at date of revaluation less any subsequent accumulated depreciation
and subsequent accumulated impairment losses

Basis:
1. Fair value – price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date.
2. Depreciated replacement cost – replacement cost of the PPE less
accumulated depreciation.

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IMPORTANT COST
CONCEPTS:

Replacement cost – current purchase price

Carrying amount – historical cost less accumulated
depreciation
Revaluation surplus/Revaluation increment/Net
appreciation – revalued amount less carrying amount
Appreciation/Revaluation increase – replacement cost less
historical cost

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ILLUSTRATION:
The ff data pertain to a machinery on the date of revaluation:
Cost Replacement cost
Machinery 3,000,000 4,800,000
Accumulated Depreciation 750,000 1,200,000

Replacement COST Appreciation

Cost
Appreciation
Machinery 4,800,000 3,000,000 1,800,000
Appreciation of Accum Depn
Accumulated 1,200,000 750,000 450,000
Depreciation
Revaluation Surplus
3,600,000 2,250,000 1,350,000 (net appreciation)

Depreciated replacement cost

Carrying amount
(sound value)

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ACCOUNTING FOR
REVALUATION

Approaches:
1. Proportional – accumulated depreciation is restated
proportionately with change in gross carrying amount
2. Elimination – accumulated depreciation is eliminated
against gross carrying amount

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ILLUSTRATION:
The ff data pertain to a machinery on the date of revaluation:
ENTRY:
Cost Replacement cost
Machinery 3,900,000
Machinery 8,500,000 12,400,000
Accumulated Depreciation 1,600,000
Accumulated Depreciation 3,200,000 ?
Revaluation Surplus (OCI) 2,300,000
Residual value 500,000 400,000
Original EUL is 10 years, and revaluation shows revised EUL New annual depreciation:
of 12 years from acquisition Depreciation on cost (P4.9M/8) 612,500
Depreciation on appreciation (P2.3M/8) 287,500
PROPORTIONAL APPROACH:
Total depreciation 900,000
Proportionate accumulated depreciation:
Basically, (P7.6M-P400,000)/8
(P3.2M/P8M)*P12M P4,800,000
Replacement COST Appreciation ENTRY:
Cost
Depreciation 900,000
Machinery 12,400,000 8,500,000 3,900,000
Accumulated Depreciation 900,000
Accumulated 4,800,000 3,200,000 1,600,000
Depreciation
SV/CA/RS 7,600,000 5,300,000 2,300,000

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ILLUSTRATION:
The ff data pertain to a machinery on the date of revaluation: ELIMINATION APPROACH:
Cost Replacement cost
Machinery 8,500,000 12,400,000 1/ Eliminate accumulated depreciation
Accumulated Depreciation 3,200,000 ? Accumulated Depreciation 3,200,000
Residual value 500,000 400,000 Machinery 3,200,000
Original EUL is 10 years, and revaluation shows revised EUL
of 12 years from acquisition 2/ Adjust machinery to sound value
Machinery 2,300,000
Replacement COST Appreciation Revaluation Surplus 2,300,000
Cost
Machinery 12,400,000 8,500,000 3,900,000
3/ Annual depreciation (same as proportional approach)
Accumulated 4,800,000 3,200,000 1,600,000
Depreciation Depreciation 900,000
SV/CA/RS 7,600,000 5,300,000 2,300,000 Accumulated Depreciation 900,000

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ACCOUNTING FOR
REVALUATION
SURPLUS
• Changes in revaluation surplus should be taken up as a component of
other comprehensive income.
• The balance of revaluation surplus may be transferred to retained
earnings when realized.
• If the asset is being depreciated, the revaluation surplus is allocated over
the remaining useful life of the asset and reclassified through retained
earnings.
• Any revaluation decrease shall be charged directly against any revaluation
surplus to the extent of the previous revaluation. Any excess is charged to
expense.

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ILLUSTRATION:
The ff data pertain to a machinery on the date of revaluation: The revaluation surplus of P2,300,000 may be charged
Cost Replacement cost directly against RE upon realization OR allocated over
remaining useful life:
Machinery 8,500,000 12,400,000
Revaluation Surplus 2,300,000
Accumulated Depreciation 3,200,000 ?
Remaining EUL:
Residual value 500,000 400,000
New EUL 12
Original EUL is 10 years, and revaluation shows revised EUL
Years depreciated [P3.2M/(P8M/10)] 4 8
of 12 years from acquisition
Piecemeal allocation of RS 287,500

Replacement COST Appreciation

Cost
ENTRY at end of year:

Machinery 12,400,000 8,500,000 3,900,000 Revaluation Surplus 287,500

Accumulated 4,800,000 3,200,000 1,600,000 Retained Earnings 287,500
Depreciation
SV/CA/RS 7,600,000 5,300,000 2,300,000

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ILLUSTRATION:
The revaluation decrease is computed below:
Replacement COST Appreciation
Cost Fair value 3,760,000
Depreciated replacement cost 5,800,000
Machinery 12,400,000 8,500,000 3,900,000
Decrease in revaluation 2,040,000
Accumulated 4,800,000 3,200,000 1,600,000
Depreciation To record entry on reversal, the fair value must be “grossed up” to get
new replacement cost and accumulated depreciation:
SV/CA/RS 7,600,000 5,300,000 2,300,000
[(P3.76M-P400,000)*12/6]+P400,000 7,120,000

Per books Adjusted Decrease

Supposing 2 years from revaluation date, the fair value of the
machine was determined to be P3,760,000. Replacement cost 12,400,000 7,120,000 5,280,000

At this point updated balances are as follows: Accumulated 6,600,000 3,360,000 3,240,000
depreciation
Machinery 12,400,000
Depreciated 5,800,000 3,760,000 2,040,000
Accumulated Depreciation replacement cost

P4.8M + (2*P900,000) 6,600,000

ENTRY:
Depreciated replacement cost 5,800,000 Accumulated Depreciation 3,240,000
Revaluation surplus: Revaluation Surplus 1,725,000

P2.3M*6/8 1,725,000 Loss on Revaluation 315,000

Machinery 5,280,000

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SALE OF REVALUED
ASSET

• All accounts relating to the revalued asset are closed.

• Difference between sales price and the carrying amount of the revalued
asset is recognized as gain or loss on the sale.
• Any remaining revaluation surplus is charged against retained earnings

74
ILLUSTRATION:
Suppose instead of a revaluation, the asset was sold for its fair value of P3,760,000.
At this point updated balances are as follows:
Machinery 12,400,000
Accumulated Depreciation
P4.8M + (2*P900,000) 6,600,000
Depreciated replacement cost 5,800,000
Revaluation surplus:
P2.3M*6/8 1,725,000

ENTRY 1 (sale) ENTRY 2 (realization of RS)

Cash 3,760,000 Revaluation Surplus 1,725,000
Accumulated Depreciation 6,600,000 Retained Earnings 1,725,000
Loss on sale 2,040,000
Machinery 12,400,000

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FS PRESENTATION

• PPE measured using revaluation model shall be presented in SOFP

at depreciated replacement cost/sound value.
• The historical cost and related accumulated depreciation shall be
disclosed in the notes to FS.

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DISCLOSURES ON
REVALUATION

 Effective date of revaluation

 Whether an independent valuer was involved
 Method and significant assumptions applied in estimating fair value
 The extent to which the fair value was determined directly by reference to
observable prices in an active market or recent market transactions on an
arm’s length terms or was estimated using other valuation techniques
 Historical cost and carrying amount of each class of revalued PPE
 Revaluation surplus, indicating the movement for the period and any
restrictions on the distribution of the balance to shareholders

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Other Matters
DERECOGNITION

Derecognition is allowed for:

1. PPEs disposed; or
2. When no future economic benefits are expected
from the use or disposal

Any G/L from the derecognition is taken to P/L

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FULLY DEPRECIATED
PROPERTY

Fully depreciated assets that remain in service

ordinarily shall not be removed from the books
(includes cost and accumulated depreciation)

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PROPERTIES HELD
FOR SALE

 available for immediate sale

 present condition
 within 1 year from date of classification

• Included as separate line item under current assets

• Measured at lower of carrying amount and FV less costs of disposal (the
difference is treated as impairment loss where applicable)
• Not depreciated

81
IDLE OR
ABANDONED
PROPERTY
 Continued to be depreciated
 Included as part of PPE

82