John Lacasse, the chief financial officer of a real estate company, has been asked to review International Accounting Standard "IAS 16 Property, Plant and Equipment" to see how it would apply to the company. IAS 16 permits two accounting models for the treatment of property, plant, and equipment:
• Cost model: Assets are carried at their cost less accumulated depreciation and impairment.
• Revaluation model: Assets are carried at a revalued amount, which is the asset's fair value at the date of revaluation less subsequent depreciation and impairment, provided that the fair value can be measured reliably.
Under the revaluation model, revaluations should be done regularly so that an asset's carrying amount does not differ materially from its fair value at the statement of financial position date.
Instructions
Write a letter to John that outlines the advantages and disadvantages of increasing the value of property, plant, and equipment in a real estate company. You should discuss in your letter the depreciable amount, and any other points that you wish to make.