ACC2100 · Financial Accounting
Revaluation of Assets (AASB 116)
Revaluation of Assets (Week 4, AASB 116) covers how property, plant and equipment is measured: the initial cost on recognition, the policy choice between the cost model and the revaluation model, and the rules for taking revaluation gains and losses to either equity (OCI) or profit or loss. The trickiest part is the reversal rule for subsequent revaluations and re-depreciating a revalued asset.
This is an MCQ-pool topic (Weeks 3, 4, 5). Expect questions on what belongs in initial cost, the first-time vs subsequent up/down treatment, and the depreciation restatement on a revalued asset.
What this chapter covers
- 01Initial cost = purchase price + directly attributable costs + initial dismantling/restoration estimate
- 02Directly attributable costs (site prep, delivery, installation, testing) vs excluded costs (opening a facility, admin overhead, relocation)
- 03Policy choice per class: cost model vs revaluation model — revalue the whole class, no cherry-picking
- 04First-time revaluation: increase → OCI → Asset Revaluation Surplus (equity); decrease → expense in P&L
- 05Subsequent increase that reverses a prior decrease → P&L to the extent of the prior loss, remainder to OCI
- 06Subsequent decrease that reverses a prior increase → OCI to the extent of the surplus, remainder to P&L
- 07Depreciable-asset revaluation: write off accumulated depreciation, restate to fair value, re-depreciate over remaining life
- 08Link to tax: an upward revaluation raises a DTL (tax base unchanged)
Revaluation of land: an increase then a later decrease
- 2 marks2025 — the increase is $60,000 (500,000 → 560,000). A first-time increase goes through OCI to the Asset Revaluation Surplus: Dr Land 60,000 / Cr Gain on revaluation (OCI) 60,000, then Dr Gain (OCI) 60,000 / Cr Asset Revaluation Surplus 60,000.
- 2 marks2026 — the decrease is $80,000 (560,000 → 480,000). Apply the reversal rule: a decrease that reverses a prior increase goes to OCI to the extent of the surplus ($60,000), and the remainder ($20,000) goes to P&L.
- 1 markRecognise the decrease: Dr Loss on revaluation (OCI) 60,000; Dr Loss on revaluation (P&L) 20,000; Cr Land 80,000.
- 1 markClear the surplus that was reversed: Dr Asset Revaluation Surplus 60,000 / Cr Loss on revaluation (OCI) 60,000.
Key terms
- Cost model
- Measuring an item of PPE after recognition at cost less accumulated depreciation and any accumulated impairment losses. One of the two policy choices under AASB 116.
- Revaluation model
- Measuring an item of PPE at a revalued amount — its fair value at the revaluation date less subsequent accumulated depreciation and impairment. Must be applied to the entire class of assets, not selected items.
- Asset Revaluation Surplus (ARS)
- An equity reserve that accumulates revaluation increases recognised through other comprehensive income. It is the buffer a later decrease for the same asset is charged against before any loss reaches profit or loss.
- Other comprehensive income (OCI)
- Income and expenses that bypass profit or loss and are recognised directly in equity. Revaluation increases (and decreases that reverse them) flow through OCI to the Asset Revaluation Surplus.
- Directly attributable costs
- Costs needed to bring an asset to the location and condition for its intended use — site preparation, delivery and handling, installation and testing — which are capitalised into initial cost. Admin overhead, launch costs and relocation are excluded.
Revaluation of Assets (AASB 116) FAQ
Can I revalue just one asset in a class?
No. If you revalue one item of property, plant and equipment, you must revalue the entire class to which it belongs. This 'no cherry-picking' rule stops entities from revaluing only the assets that have risen in value. The cost-vs-revaluation choice is itself made class by class.
Does a revaluation increase go to profit or to equity?
A first-time increase goes to other comprehensive income and accumulates in the Asset Revaluation Surplus (equity), not to profit. The exception is an increase that reverses a previous decrease that was expensed: that part goes to profit or loss first (to undo the earlier expense), and only the remainder goes to OCI.
What happens to accumulated depreciation when I revalue a depreciable asset?
Write the accumulated depreciation off against the gross asset, then restate the net asset to its fair value, and re-depreciate that new carrying amount over the remaining useful life. Forgetting to reset accumulated depreciation, or depreciating off the old cost, is a common error.
How does revaluation interact with deferred tax?
Revaluing a non-current asset upward increases its carrying amount but not its tax base (which stays at original cost), creating a taxable temporary difference and therefore a deferred tax liability. So the net revaluation entry splits the uplift: × tax rate to the DTL and × (1 − rate) to the Asset Revaluation Surplus. This is the bridge to the deferred-tax chapter.
Exam move
Master two things: the up/down decision and the depreciation restatement. Build a small 2×2 in your head — first-time vs subsequent × increase vs decrease — and write the destination (OCI/ARS or P&L) in each cell, remembering the reversal logic that ties the diagonals together. For depreciable assets, always run the three-step restatement (write off accumulated depreciation, restate to fair value, re-depreciate over remaining life) rather than improvising. Keep the initial-cost checklist handy for MCQs (capitalise directly attributable costs; expense admin, launch and relocation). Finally, connect to the next chapter: practise the upward-revaluation-with-tax entry (× rate to DTL, × (1 − rate) to ARS) because the same split reappears in consolidation BCVR.
