REVALUATION Flashcards
What is the revaluation model?
Under the revaluation model, an item of PPE whose fair value can be MEASURED RELIABLY IS CARRIED AT A REVALUED AMOUNT.
The REVALUED AMOUNT IS THE FAIR VALUE AT THE DATE OF THE REVALUATION LESS ANY SUBSEQUENT ACCUMULATED DEPRECIATION AND SUBSEQUENT ACCUMULATED IMPAIRMENT LOSSES.
How frequent must an item of PPE be revalued if an entity opts for the revaluation model?
It DEPENDS UPON THE CHANGES IN THE FV OF THE PROPERTY being revalued.
How should PPEs be revalued? Per item or as a class?
PPEs must be REVALUED BY CLASS. A class is a grouping of assets of a similar nature and use, such as the following:
a. Land
b. Buildings
c. Vehicles
d. Office equipment
What are the basis of revaluation?
The revalued amount of PPE is based on:
a. Fair Value
b. Depreciated replacement cost OR sound value
What is appreciation?
Appreciation, or revaluation increase, is the difference between the cost of a PPE and the replacement cost or fair value.
It simply means that the PPE increased in value and involves a debit of PPE, credit of accumulated depreciation and revaluation surplus.
What is accumulated depreciation appreciation?
It is the difference between the accumulated depreciation in the carrying amount of an asset and the accumulated depreciation of the replacement cost.
It simply means that since that since the original PPE has appreciated, a corresponding increase in accumulated depreciation is needed.
What is revaluation surplus?
Revaluation surplus is equal to the sound value minus the carrying amount of the PPE. It is also known as REVALUATION INCREMENT.
What are the two approaches in recording revaluation?
- PROPORTIONATE APPROACH
2. ELIMINATION APPROACH
Explain the proportionate approach method in recording revaluation.
PROPORTIONATE APPROACH IS PREFERRED METHOD. The accumulated depreciation at the date of revaluation is restated proportionately with the change in gross carrying amount of the asset.
Explain the elimination approach in recording revaluation.
The accumulated depreciation is ELIMINATED against the gross carrying amount of the asset and the net amount restate to the revalued amount of the asset.
What is the treatment of revaluation surplus?
Revaluation surplus is A COMPONENT OF OTHER COMPREHENSIVE INCOME.
Revaluation surplus is CLOSED TO RETAINED EARNINGS ACCOUNT over the remaining useful life of the asset.
What happens when there is residual value in a revaluation problem?
The NEW RESIDUAL VALUE is considered in determining the remaining depreciable amount BASED ON COST.
Explain the reversal of a revaluation increase.
When an asset’s carrying amount is decreased as a result of revaluation, THE DECREASE SHALL BE RECOGNIZED AS AN EXPENSE, BUT MUST FIRST BE CHARGED AGAINST ANY REVALUATION SURPLUS.
Explain the reversal of a revaluation decrease.
When an asset’s carrying amount is increased as a result of revaluation, THE INCREASE SHALL BE CREDITED TO REVALUATION SURPLUS, BUT IT SHALL BE RECOGNIZED AS INCOME TO THE EXTENT THAT IT REVERSES A REVALUATION DECREASE OF THE SAME ASSET PREVIOUSLY RECOGNIZED AS AN EXPENSE.
Example: initial devaluation of land from 5M to 4M entry:
Debit revaluation loss and credit land for 1M.
The price of the land subsequently rose to 5.5M in the following year.
Debit Land 1.5M, credit revaluation gain of 1M and credit revaluation surplus of 500k.
What happens when a revalued asset is sold?
All accounts pertaining to the revalued asset shall be closed, and any revaluation surplus accounts are closed to the retained earnings account.
