Revaluation Model

Revaluation model is a model that is used for measurement of various fixed assets of a business. The model applies to all fixed tangibles and intangible assets. Standards permit its application if it results in better presentation of information.

Revaluation Model And Cost Model

Cost model states that a fixed asset should be reported in the balance sheet at cost less accumulated depreciation and impairment losses. Revaluation model states that an asset should be revalued at each reporting date and depreciated with respect to new useful life and new fair value. The difference between carrying amount and the revalued amount should be recognized as revaluation surplus or revaluation deficit as a reserve.

Cost Model Revaluation Model Example

Suppose a company purchased a plant three years back in 2011 at a cost of $50,000. The useful life of the plant was determined at the time of purchase equal to 10 years with no salvage value. It is company’s policy to depreciate all its plants using straight-line method.

Accounting As Per Cost Model

Balance sheet                                                                   

                                2011                       2012                       2013

                Cost                                                                    $50,000                     $50,000                 $50,000

                Less: Accumulated depreciation                             -5,000                       -10,000                 -15,000

                Carrying value                                                       45,000                      40,000                   35,000

In the start of 2014 the company adopted the revaluation model and the revalued amount of the plant was estimated to be $48,000 with remaining useful life of 6 years after which the plant can be sold for $6,000.

Accounting as per revaluation model

                                            2014                       

                Cost                                                                       $50,000 

                Less: Accumulated depreciation                               -15,000                 

                Carrying value at the end of 2013                             35,000   

                Revaluation of plant in 2014                                      48,000

                Revaluation surplus                                                  13,000

                Depreciation for 2014                                                (48,000-6000)/6 = 7,000


                Balance sheet                                                                   

                                              2014                       

                Plant at Fair value                                                    $48,000 

                Less: Accumulated depreciation                                -7,000                    

                Carrying value                                                         41,000                   


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