Revaluation of Assets

INTERMEDIATE ACCOUNTING 1
Revaluation of Assets

To recap:
➢ Initial measurement: Cost
➢ Subsequent measurement:
o Cost model; or
o Revaluation model

Nota bene:
➢ The accounting policy chosen as to subsequent measurement shall apply to an entire class of PPE.

In accounting for PPE under the revaluation model, the preferable method is the proportional approach because:
➢ It preserves the gross and net amounts after revaluation.
➢ This will prove useful in providing subsequent annual depreciation on cost and the revaluation increase, and the
consequent piecemeal realization of the revaluation surplus.

Pro-forma journal entries:

Asset xx
Accumulated depreciation xx
Revaluation surplus xx
To record the appreciation of asset.

Revaluation surplus xx
Retained earnings xx
To record the piecemeal realization of the revaluation surplus.

Revaluation surplus
➢ Current year increase – reported as OCI component
➢ Cumulative balance – reported as accumulated OCI reserve

Revaluation increase (FV > CA)

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Revaluation of Assets
Revaluation decrease (FV < CA)

ILLUSTRATIVE PROBLEM 1:
On January 1, 2023, the revaluation shows the following:

The machine was acquired 4 years ago and has a useful life of 10 years.

On December 31, 2025, three years after revaluation, an impairment of the machine is indicated and the recoverable amount
is P1,050,000. On December 31, 2026, the recoverable amount is P1,200,000.

Prepare journal entries from 2023 to 2026.

ILLUSTRATIVE PROBLEM 2:
The following are independent scenarios regarding the revaluation of a land:
1. The historical cost of the land is P5,000,000 and the land was revalued upward to P6,000,000 three years ago. In
the current year, the fair value of the land has fallen to P3,500,000.
2. An entity has an item of land with historical cost of P5,000,000. Three years ago, the entity reduced the carrying
amount of the land to conform with its fair value of P4,000,000 by reason of slump in land value. However, in the
current year, there has been a surge in land prices and the land has now a fair value of P5,500,000.

Prepare journal entries from each of the independent scenarios.

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