Practical Accounting 1 SMC 😊 Previously revalued:

P1.00_ Property, Plant and Equipment – Revaluation Model • Recognized in OCI to the extent of any credit balance existing in the revaluation surplus in respect of
that asset
• Excess recognized in P/L
The Revaluation Model
Realized Revaluation Surplus
• The asset is carried at a revalued amount, being its fair value at the date of the revaluation less any
subsequent accumulated depreciation and subsequent accumulated impairment losses. • May be transferred directly to retained earnings, or
• If an item is revalued, the entire class of assets to which that asset belongs should be revalued. • It may be left in equity under the heading revaluation surplus.

How to determine fair value? • The transfer to retained earnings should not be made through profit or loss.

• Land and buildings - usually determined from market-based evidence by appraisal that is normally - done -
undertaken by professionally qualified valuers.
• Items of plant and equipment - usually determined by appraisal.
Illustrative Problems
• If there is no market-based evidence of fair value because of the specialized nature of the item of
PPE and the item is rarely sold, except as part of a continuing business, an entity may need to
estimate fair value using an income or a depreciated replacement cost approach. Use the following information for next two questions.
Tyke Corporation has the following information on January 1, 2017 relating to its land and building.
How often should assets be revalued?
Land P 20,000,000
• Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not Building 450,000,000
differ materially from that which would be determined using fair value at the end of the reporting Accumulated depreciation 75,000,000
period.
• The frequency of revaluations depends upon the changes in fair values of the items of PPE being There were no additions or disposals during 2017. Depreciation is computed using straight line method
revalued. over 15 years for building. On June 30, 2017, the land and building were revalued as follows:
• When the fair value of a revalued asset differs materially from its carrying amount, a further Depreciated
revaluation is required. Replacement cost replacement cost
• Some items of PPE experience significant and volatile changes in fair value, thus necessitating annual Land P 35,000,000 P 35,000,000
revaluation. Building 600,000,000 480,000,000
• Such frequent revaluations are unnecessary for items of PPE with only insignificant changes in fair
value. Instead, it may be necessary to revalue the item only every three or five years. 1. The depreciation expense for the year 2017 is

Accounting for Revaluation Increase 2. The revaluation surplus as of December 31, 2017 is

Not previously impaired: Use the following information for next two questions.
• Recognized in OCI and accumulated in equity under the heading of revaluation surplus
Tycoon Corporation acquired a building on January 1, 2013 at a cost of P50,000,000. The building has an
estimated life of 10 years and residual value of P5,000,000. The building was revalued on January 1, 2017
Previously impaired:
and the revaluation revealed replacement cost of P80,000,000, residual value of P2,000,000 and revised
• Reversal of impairment loss recognized in P/L total life of 12 years.
• Excess recognized in OCI
3. The carrying amount of building as of December 31, 2017 is
Accounting for Revaluation Decrease
4. The revaluation surplus as of December 31, 2017 is
Not previously revalued:
• Recognized in P/L as revaluation loss
Use the following information for the next three questions.
On December 31, 2016, the statement of financial position of Twitter Corporation showed the following
property and equipment after charging depreciation:
Building P3,000,000
Accumulated depreciation (1,000,000) P2,000,000
Equipment 1,200,000
Accumulated depreciation (400,000) 800,000

The company has adopted the revaluation model for the valuation of property and equipment. This has
resulted in the recognition in prior periods of an asset revaluation surplus for the building of P140,000. The
company does not make a transfer to retained earnings in respect of realized revaluation surplus.

On December 31, 2016, an independent valuer assessed the fair value of the building to be P1,600,000
and the equipment to be P900,000. The building and equipment had remaining useful lives of 25 years
and 4 years, respectively, as of that date.

5. The net amount to be recognized in comprehensive income for 2016 related to the revaluation of
property and equipment is

6. The carrying amount of property and equipment as of December 31, 2017 is

7. The revaluation surplus as of December 31, 2017 is

8. During the current year an entity sold a piece of equipment used in production. The equipment had
been accounted for using the revaluation method and details of the accounts and sale are
presented below:
Sales price P100,000
Equipment carrying amount (net) 90,000
Revaluation surplus 20,000

Which of the following is correct regarding recording the sale?

a. The gain that should be recorded in profit and loss is P30,000
b. The gain that should be recorded in other comprehensive income is P10,000
c. The gain that should be recorded in other comprehensive income is P30,000
d. The gain that should be recorded in profit and loss is P10,000; the P20,000 revaluation surplus may
be transferred to retained earnings.

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