Revaluation model
The revaluation model is an alternative to historical cost that restates property, plant and equipment to fair value, with the uplift recorded in a revaluation reserve within equity rather than in profit or loss.
FrameworkIAS 16
See it move
A building's carrying amount of €900,000 is restated to a valuer's fair value of €1,050,000, a €150,000 revaluation surplus. Rather than boosting profit, the surplus is credited to a revaluation reserve within equity, and depreciation going forward rises from €60,000 to €70,000 a year on the higher value.
The formula
Variables
- Fair value at the revaluation date, from an independent valuation (€)
- Carrying amount immediately before the revaluation (€)
The upward adjustment recognised in a revaluation reserve within equity, not in profit or loss.
Variables
- Revised annual depreciation charge (€)
- Fair value recorded at the revaluation date (€)
- Remaining useful life at the revaluation date (years)
Depreciation is recalculated on the new carrying amount over the useful life still remaining after revaluation.