# Accounting Treatment of Revaluation of Fixed Assets

## What is Fixed Assets Revaluation?

Fixed Assets revaluation is the process of increasing or decreasing the carrying value of fixed assets. International Financial Reporting Standards (IFRS) stated that initially fixed assets to be recorded at cost, but they allow two models for subsequent accounting for fixed assets, namely: Cost Model and Revaluation Model.

If the revaluation policy is adopted this should be adapted to all assets in the entire category. Such as – if you revalue a building, you must revalue all land and building in that class of asset. Point to be noted that regulation must be carried out with sufficient regularity so that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.

## Accounting Entries for Revaluation

If you decide to revalue Non-Current Assets (Fixed Assets), you have to give a series of accounting adjustments. The adjustments of revaluation non-current assets are indicated below:

 Carrying amount of Non-Current Assets on revaluation date **** Valuation of Non-Current Assets (Revalued assets Price) **** Difference = Gain or Loss from Revaluation ****

## Revaluation Gains Treatment

Revaluation Gain is always recognized in Equity (Unless the gain reverses revaluation losses on the same asset that were previously recognized in the income statement). The Accounting Entry are as follows:

 Non-Current Asset Cost ( Difference between valauation and Original Cost) Dr Accumulated Depreciation ( with any historical cost accumulated Depreciation) Dr Revaluation Gain/Reserve Cr

Worked Example:

A Company Purchase a building on 1st April’2011 for \$ 100,000. The useful life of assets was 10 years. On 1st April’2013, the company revalued the building to its currents fair value of \$ 120,000.

What would be the double entry to record this transactions?

Solution:

Calculation of carrying amount on revaluation date:

 Total Purchase Value 100,000 Less: Accumulated Depreciation (1000,000 x 2/10) 20,000 Carrying value/WDV 80,000

Calculation of Revaluation Gain/reserve:

 Carrying Amount of Non-Current Assets 80,000 Revaluaed amount (Fair value) 120,000 Revaluation Gain/reserve 40,000

Journal Entry:

 Non-current asset cost (difference between valuation and original cost/valuation) Dr 20,000 Accumulated depreciation (with any historical cost accumulated depreciation) Dr 20,000 Revaluation reserve (gain on revaluation) Cr 40,000

## Revaluation Loss Treatment

Revaluation Loss Treatment:

Revaluation loss should be charged against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of the same asset. Any additional loss should be charged as an expenses in the statement of profit or loss.

Journal Entry:

 Revaluation Reserve ( maximum original gain) Dr Income Statement (any residual losses) Dr Non-Current Assets (loss on revaluation) Cr

## Whether Depreciation Charged on Revalued Assets?

Depreciation must be continued following the revaluation. The revalued amount should be depreciated over the assets remaining useful life. Depreciation charged on revalued assets and depreciation charged on historical cost must be different.

## Journal Entry of “Revaluation Reserve Transfer“

As depreciation charged on revalued assets and historical assets is different, the IAS 16 permits a transfer to be made of of an amount equal to the excess depreciation from the revaluation reserve to retained earnings.

Journal Entry:

 Revaluation Reserve Dr Retained Earnings Cr