Revaluation Model is a type of measurement model available to certain assets (usually land) within the scope of IAS 16. This summary combines lecture notes, Introduction to IFRS and personal notes in order to outline how to measure and disclose revaluation surpluses and deficits. This summary conta...
Background
o Initial Recognition: revaluation model not applicable (i.e., always initially measure using
cost model)
o Subsequent Recognition: revaluation of asset should be performed at least annually by
an independent valuer
▪ Surplus recorded in OCI & accumulates in equity
▪ Deficit recorded in P/L but can surplus balance in OCI
o Realisation: generally, revaluation surplus realises upon sale of asset
▪ Surplus will be transferred to retained earnings upon realisation
o IAS 8: if changing subsequent measurement from cost model to revaluation model, then
it’s a change in accounting policy (realistically, the opposite change will never happen)
o Disclosure: info specifically disclosed for revalued amounts
▪ Effective date of revaluation
▪ If there was an independent valuer
▪ What the CA would be if the asset was measured using the cost model
▪ Restrictions of shareholder distribution
o Journals:
DR CR Narration
Asset (SFP) Revaluation Surplus (OCI) Revaluation of asset to FV
Revaluation Surplus (SCE) Retained Earnings (SCE) Realisation of revaluation
surplus on sale of asset
Revaluation Deficit (P/L) Asset (SFP) Revaluation of asset to FV
o NB! Revaluations are asset-specific & don’t apply to whole classes of assets
Income Tax Implications
o For non-depreciable assets that are revalued
▪ CA can only be recovered through sale
▪ Therefore, CGT rate will be used to calculate deferred tax when asset is revalued
at amount higher than base cost (cost price)
o Where transactions/events are recognised in OCI or Equity, then tax effect must also be
recognised in applicable place
o Where revaluation surplus is transferred to retained earnings upon realisation, amount is
net of deferred tax
o Tax Base = Cost Price
o CGT taxable portion (inclusion rate) = 80%
o Calculation = revaluation surplus x 80% x 27% (use applicable standard company tax
rate)
o Journals:
DR CR Narration
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