Revaluation of PP&E

In this lesson

1. 0:00 Introduction to property, plant and equipment revaluation
2. 0:36 Cost model versus revaluation model
3. 1:00 Revaluation model requirements and frequency
4. 2:19 Accounting for upwards revaluation
5. 3:20 Journal entry for revaluation increase
6. 4:29 Downwards revaluation treatment
7. 6:33 Downwards followed by upwards revaluation
8. 7:47 Worked example: land revaluation down then up
9. 10:15 Other comprehensive income and revaluation movements
10. 10:59 Depreciation timing after revaluation
11. 12:21 Annual transfer of excess depreciation
12. 14:38 Worked example: depreciation and reserve transfer
13. 20:26 Disposal of revalued assets
14. 21:27 Worked example: building disposal with revaluation surplus

About this lesson

The lesson covers the mechanics of upwards and downwards revaluations, how to handle revaluation surpluses, the treatment of depreciation on revalued assets, and the correct accounting for disposals. You'll work through detailed examples showing journal entries for revaluations, annual transfers to retained earnings, and the removal of revaluation reserves when assets are sold. Revaluation is a choice available under IAS 16, but once adopted, it must be applied consistently to all similar assets. You'll learn that revaluations must be performed regularly—typically every three to four years—to ensure carrying amounts don't materially differ from fair value. When an asset is revalued upwards, the increase is credited to a revaluation surplus (a non-distributable reserve), while the asset cost is restated and accumulated depreciation is removed. Downwards revaluations are more complex: any loss first reverses a previous revaluation surplus, with any excess recognised as an impairment expense in profit or loss. The lesson clarifies the sequence of reversals when revaluations alternate direction, ensuring you handle multiple revaluations of the same asset correctly. A crucial practical consideration is depreciation on revalued assets. Once revalued, depreciation is calculated on the new higher amount, which increases the annual charge. IAS 16 permits an annual transfer from the revaluation surplus to retained earnings equal to the extra depreciation charged—this prevents the revaluation surplus from artificially inflating reserves over the asset's life. Finally, you'll see how to treat disposals: calculate the profit or loss as proceeds minus carrying amount, and transfer any remaining revaluation surplus to retained earnings to remove it from the statement of financial position.

Duration: 23m