Subtopic #1: Revaluation Surplus

Measurement of Initial Recognition

PPE - At cost

Subsequent Recognition
a. Cost Model
b. Revaluation Model

Frequency of - depends upon the changes in the FV of PPE being revalued

Revaluation - FV of revalued asset differs materially from the carrying amount, a
further revaluation is necessary
- Experience significant and volatile changes in FV necessitating annual
revaluation

Revaluation of All - Class of PPE is grouping of assets of a similar nature and use in an
Items in an Entire entity’s operations
Class - Revalued simultaneously in order to avoid selective revaluation of
assets and the reporting of amounts which are a mix of cost and value
at different dates
- May be revalued on a rolling basis provided it is completed within a
short period of tome and provided the revaluations are kept up to date

Basis of a. FV
Revaluation b. Depreciated replacement cost

Revalued amount - FV or depreciated replacement cost of the PPE

Depreciated - Replacement of the PPE minus corresponding accumulated

replacement cost depreciation
- Sound value of the asset

Replacement cost - Current purchase of the PPE

Carrying amount - Equal to historical cost minus the corresponding accumulated

depreciation

Revaluation surplus - FV or Depreciated Replacement Cost minus the carrying amount of the
PPE
- Revaluation increment
- Appreciation minus corresponding accumulated depreciation

Appreciation or - Excess of the replacement cost over historical cost

revaluation
increase
Two Approaches in a. Proportional approach
Recording the - Accumulated depreciation at date of revaluation is reinstated
Revaluation proportionately with the change in the gross carrying amount of the
 asset
- CA after revaluation is equals to the revalued amount

b. Elimination approach
- Accumulated depreciation is eliminated against gross carrying amount
of the asset and the net amount restated to the revalued amount of
the asset

- Proportional approach us preferable because it preserves the gross and

net amounts
- Useful in providing subsequent annual depreciation on cost and on
revaluation increase
- Piecemeal realization of the revaluation surplus
Treatment of - Component of other comprehensive income
Revaluation Surplus - May be transferred directly to R/E when realized on retirement or
disposal
- Allocated or realized over the remaining useful life of the asset and
reclassified through R/E

Revaluation surplus
Retained Earnings

Change in Life and Calculation of Cost

Residual Value Residual Value – based on the new residual value
Acc. Dep – based on the original residual value

Revaluation - Charged directly against any revaluation surplus to the extent that the
decrease decrease is a reversal of a previous revaluation
- Balance is charged to expense (revaluation loss)

Sale of revalued - All accounts relating thereto shall be closed to determine the gain or
asset loss on sale

Disclosures related a. Effective date of revaluation

to revaluation b. Whether an independent valuer was involved
c. Method and significant assumptions applied in estimating FV
d. Extent to which the FV 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
technique
e. Historical cost and carrying amount of each class of revalued PPE
f. Revaluation surplus, indicating the movement for the period and any
restrictions on the distribution of the balance to shareholders

Subtopic #2: Impairment of Asset

Impairment - Fall in the market value so that the recoverable amount is now less
than the carting amount in the SFP
 - Principle that an asset shall not be carried at above the recoverable
cost

Accounting for 3 Main Accounting Issues

Impairment a. Indication of possible impairment
b. Measurement of the recoverable amount
c. Recognition of impairment loss

Indication of - Assess at each reporting date whether there is any indication

Possible
Impairment Annually - Intangible asset with an indefinite useful life or not yet available for
use

External Sources a. Significant decrease or decline in the market value of the asset as a
result of passage of time or normal use or new competitor entering the
market
b. Significant change in the technological, market, legal, or economic
environment of the business in which the asset is employed
c. An increase in the interest rate or market rate of return on investment
(affect discount rate in calculating value in use)
d. The carrying amount of net assets is more than the market
capitalization

Internal Sources