Revaluation Model

Once recognized, assets may be determined to have less value than originally thought. The new value should not exceed original cost or fair market value less subsequent depreciation that has accumulated. When items are regularly reviewed, it creates more reliable financial reports.

Frequent revaluations are only necessary when fair market values fluctuate drastically and significantly. Annually, if the value is volatile to changes, and every third to fifth year is considered reasonable.

Land and Buildings

(a) restate together with the gross carrying amount, to show a carrying amount that is better matched to the fair market value (but not more than cost)

(b) eliminate the gross carrying amount and restate the amount of the asset (as in the case of Land)

*If an item of property, plant or equipment is revalued, then it is neessary that the entire class to which that asset belongs is revalued.

•     land
• land and buildings
• machinery
• ships
• aircraft
• motor vehicles
• furniture and fixtures
• office equipment

If a loss is found upon revaluation of an asset´s carrying amount, the loss is recognized (or profit) in other comprehensive income. This decrease/increase affects the amount accumulated in equity under the heading of revaluation surplus. This amount is transferred to Retained Earnings once the loss/gain is actualized for real, such as in the case of sale.