Beruflich Dokumente
Kultur Dokumente
MODEL
MEASUREMENT OF PROPERTY, PLANT
AND EQUIPMENT
Revaluation Model
After recognition as an asset, an item of
PPE whose fair value can be measured
reliably can be carried at a revalued
amount.
Frequency of Revaluation
It depends upon the changes in the fair value of PPE
being revalued.
When the fair value of a revalued asset differs
materially from the carrying amount, a further
revaluation is necessary.
Some PPE may experience significant and volatile
changes in fair value thus necessitating annual
revaluation.
Revaluation of all items in an
entire class
A class of PPE is a grouping of assets of a similar
nature and use in an entity’s operations.
The machinery was revalued 5 years from the date of acquisition. The
original useful life of the machinery is determined as follows:
P 2,000,000
= 25%
P 8,000,000
Machinery 4,000,000
Accumulated Depreciation 1,000,000
Revaluation Surplus 3,000,000
Elimination Approach
The accumulated depreciation is eliminated or offset
against the gross carrying amount of the machinery.
Accumulated Depreciation 2,000,000
Machinery 2,000,000
The machinery account is then adjusted to conform with
the depreciated replacement cost or sound value of P9,000,000.
Machinery 3,000,000
Revaluation Surplus 3,000,000
Sound Value 9,000,000
Debit balance in machinery 6,000,000
Revaluation Surplus 3,000,000
Query
When an asset’s carrying amount is increased as a result of
the revaluation, the increase shall be credited to revaluation
surplus as a component of other comprehensive income.
The revaluation surplus may be transferred directly to
retained earnings when the surplus is realized.
Illustration 1
On January 1, 2019, the statement of financial position
shows the following date concerning an equipment:
Depreciation 800,000
Accumulated Depreciation 800,000
(4,800,000 / 6 years remaining )
Equipment 8,000,000
Accumulated Depreciation (3,200,000 + 2,400,000) 5,600,000
Depreciated replacement cost 2,400,000
Revaluation Surplus (3,200,000 + 2,400,000) 900,000
P 1,050,000
= P350,000
3 years
Sale of Revalued Asset
The difference between the sale price and the carrying
amount of the revalued asset is recognized as gain or loss on the
sale.
Illustration 1
Building 50,000,000
Accumulated Depreciation 30,000,000
Revaluation Surplus 4,000,000
Sale price of Building 22,000,000
Journal Entries