G Describe the Revaluation Model Flashcards
Long-lived assets inc. tangible assets, intangible, financial and acct. est's and choices for long-lived assets affect the firms profits, ratios, and cash flow classifications. Understanding effects and issues of capitalizing, or immediately expensing construction interest, R&D, and software costs Capitalized costs, focus on t
Describe the ‘revaluation model’
Under revaluation model, a firm does not recognize depreciation expense on an asset, but instead revalues it downward if its fair value decreases with use or age
Rarely used in practice by IFRS firms, because it’s choice means it becomes the only cost model.
A revaluation to FV < Historical Cost = a loss that’s reported on the IS which -NI, and +SE
An upward revalution reflects an increase in FV and is reported as a gain in the income statement.
Any + in assets values > historical cost is NOT reported as a gain in the IS, but as a component of SE in an account called revaluation surplus.
Subsequent declines in a revaluation surplus (+Asset value > Historical cost) result in a loss reported on the IS to the extent that an asset’s fair value decreases below its historical cost.
