Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

FAR OCAMPO/OCAMPO
FAR.07-Property, Plant and Equipment – Revaluation Model

LECTURE NOTES
References • Such frequent revaluations are unnecessary for items
of PPE with only insignificant changes in fair value.
PAS 16 – Property, Plant and Equipment Instead, it may be necessary to revalue the item only
PFRS 13 – Fair Value Measurements every three or five years.

The Revaluation Model Accounting for Revaluation Increase (FV > CA)
• The asset is carried at a revalued amount, being its fair No previous revaluation decrease:
value at the date of the revaluation less any • Income in OCI and accumulated in equity as
subsequent accumulated depreciation and subsequent revaluation surplus
accumulated impairment losses.
• If an item is revalued, the entire class of assets to With previous revaluation decrease:
which that asset belongs should be revalued. • Income in P/L as reversal of impairment loss
• A class of PPE is a grouping of assets of a similar • Excess (over the limit) income in OCI
nature and use in an entity’s operations. The following
are examples of separate classes:
(a) land; Accounting for Revaluation Decrease (FV < CA)
(b) land and buildings;
(c) machinery; No existing revaluation surplus:
(d) ships; • Expense in P/L as revaluation loss
(e) aircraft;
(f) motor vehicles; With existing revaluation surplus:
(g) furniture and fixtures; • Expense in OCI to the extent of any credit balance
(h) office equipment; and existing in the revaluation surplus in respect of that
(i) bearer plants. asset
• Excess is expense in P/L as revaluation loss
How to determine fair value?
Refer to PFRS 13 for guidance on how to determine fair Adjusting the Carrying Amount to Fair Value
value.
Gross Carrying Amount
• Land and buildings - usually determined from market-
based evidence by appraisal that is normally The gross carrying amount is adjusted in a manner that is
undertaken by professionally qualified valuers. consistent with the revaluation of the carrying amount of
• Items of plant and equipment - usually determined by the asset.
appraisal.
• If there is no market-based evidence of fair value For example, the gross carrying amount may be restated
because of the specialized nature of the item of PPE by reference to observable market data or it may be
and the item is rarely sold, except as part of a restated proportionately to the change in the carrying
continuing business, an entity may need to estimate amount.
fair value using an income or a depreciated
replacement cost approach. Accumulated Depreciation

At the date of the revaluation, the accumulated

How often should assets be revalued? depreciation is either:
• Revaluations shall be made with sufficient regularity to (a) eliminated against the gross carrying amount of the
ensure that the carrying amount does not differ asset; or
materially from that which would be determined using
(b) adjusted to equal this amount:
fair value at the end of the reporting period.
• The frequency of revaluations depends upon the Restated gross carrying amount Pxx
changes in fair values of the items of PPE being Carrying amount after revaluation (xx)
revalued. Accumulated depreciation and impairment losses xx
• When the fair value of a revalued asset differs Accumulated impairment losses (xx)
materially from its carrying amount, a further Accumulated depreciation Pxx
revaluation is required.
This computation is consistent with the
• Some items of PPE experience significant and volatile
definition of carrying amount.
changes in fair value, thus necessitating annual
revaluation.

Page 1 of 3 www.teamprtc.com.ph FAR.07

Reynaldo R. Ocampo © 2025. This content is protected and may not be shared, uploaded, or distributed.
EXCEL PROFESSIONAL SERVICES, INC.

Realized Revaluation Surplus Disclosures

• May be transferred directly to retained earnings, or • the effective date of the revaluation
• It may be left in equity under the heading revaluation • whether an independent valuer was involved
surplus. • for each revalued class of property, the carrying
amount that would have been recognized had the
• The transfer to retained earnings should not be made assets been carried under the cost model
through profit or loss. • the revaluation surplus, including changes during the
period and any restrictions on the distribution of the
balance to shareholders

- done -

DISCUSSION PROBLEMS
1. Under the revaluation model, an item of property, 5. The following pertains to an entity using the
plant and equipment whose fair value can be revaluation model for its land belonging to the same
measured reliably shall be carried at a revalued class:
amount. Revalued amount means
Land A – Acquired three years ago. Revalued at the
a. Fair value at the date of the revaluation.
end of the current year resulting in revaluation
b. Fair value at the date of the revaluation less any
decrease of P3,500,000.
accumulated depreciation and any accumulated
impairment losses. Land B - Acquired six years ago for P10,000,000. The
c. Fair value at the date of the revaluation less any entity revalued the land to P12,000,000 three years
subsequent accumulated depreciation and ago. The land was revalued again to P9,000,000 at the
subsequent accumulated impairment losses. end of the current year.
d. Cost less any accumulated depreciation and
accumulated impairment losses. The amount to be recognized in current year profit or
loss is
2. Which statement is incorrect regarding the revaluation a. P3,500,000 c. P5,500,000
model in accordance with PAS 16? b. P4,500,000 d. P6,500,000
a. Revaluations shall be made with sufficient
regularity to ensure that the carrying amount does Use the following information for the next seven questions.
not differ materially from that which would be
determined using fair value at the end of the At the end of prior year, the statement of financial position
reporting period. of an entity showed the following property and equipment
b. The frequency of revaluations depends upon the after charging depreciation:
changes in fair values of the items of property, Building P3,000,000
plant and equipment being revalued. Accumulated depreciation (1,000,000) P2,000,000
c. If an item of property, plant and equipment is
revalued, the entire class of property, plant and Equipment 1,200,000
equipment to which that asset belongs shall be Accumulated depreciation (400,000) 800,000
revalued.
d. Appraisal should be made by recognized specialists The entity has adopted the revaluation model for the
independent of the entity which owns the property. valuation of property and equipment. This has resulted in
the recognition in prior periods of an asset revaluation
3. Annual revaluation is required for items of property, surplus for the building of P140,000. The entity does not
plant and equipment make a transfer to retained earnings in respect of realized
a. That experience significant and volatile changes in revaluation surplus.
fair value.
b. When fair value differs materially from its carrying At the end of prior year, an independent valuer assessed
amount. the fair value of the building to be P1,600,000 and the
c. With only insignificant changes in fair value. equipment to be P900,000. The building and equipment
d. In all cases. had remaining useful lives of 25 years and 4 years,
respectively, as of that date.
4. The following pertains to an entity using the
revaluation model for its land belonging to the same 6. The amount to be recognized in profit or loss for prior
class: year related to the revaluation of property and
equipment is
Land A – Acquired three years ago. Revalued at the a. P100,000 c. P(260,000)
end of the current year resulting in revaluation b. P(160,000) d. P(300,000)
increase of P3,000,000.
Land B - Acquired six years ago. Revalued at the end 7. When an item of property, plant and equipment is
of the current year resulting in revaluation increase of revalued, any accumulated depreciation at the date of
P2,000,000. The entity previously recognized the revaluation is
revaluation decrease of P1,500,000 in profit or loss a. Adjusted to equal the difference between the
three years ago. restated gross carrying amount and the carrying
amount of the asset after taking into account
The balance of revaluation surplus at the end of the accumulated impairment losses.
current year is b. Eliminated against the gross carrying amount of
a. P3,000,000 c. P4,500,000 the asset.
b. P3,500,000 d. P5,000,000 c. Either a or b.
d. Neither a nor b.

Page 2 of 3 www.prtc.com.ph P1.908

TEAM PRTC

8. How much is the total balance of accumulated 14. The depreciation expense for the current year is
depreciation at the end of prior year, if the entity a. P35 million c. P30 million
adjusted it to equal the difference between the b. P40 million d. P32 million
restated gross carrying amount and the carrying
amount of the asset after taking into account 15. If the entity transfers realized revaluation surplus to
accumulated impairment losses? retained earnings, the revaluation surplus at the end of
a. P0 c. P1,650,000 the current year is
b. P1,250,000 d. P2,450,000 a. P135 million c. P130 million
b. P125 million d. P127 million
9. Depreciation, if applicable, is recognized under
16. An entity acquired a building four years ago at a cost
Cost Model Revaluation Model
of P50,000,000. The building has an estimated life of
a. Yes Yes
10 years and residual value of P5,000,000. The
b. Yes No
building was revalued at the beginning of the current
c. No Yes
year to P41,600,000 with a residual value of
d. No No
P2,000,000 and revised total life of 12 years. The
carrying amount of building at the end of the current
10. The carrying amount of property and equipment at the
year is
end of the current year is
a. P41,600,000 c. P36,400,000
a. P2,080,000 c. P2,400,000
b. P36,650,000 d. P34,650,000
b. P2,211,000 d. P2,500,000
17. During the current year an entity sold a piece of
11. Which statement is incorrect regarding ‘realized’
equipment used in production. The equipment had
revaluation surplus?
been accounted for using the revaluation method and
a. It may be transferred directly to retained earnings.
details of the accounts and sale are presented below:
b. It may be left in equity under the heading
revaluation surplus. Sales price P100,000
c. The transfer to retained earnings can be made Equipment carrying amount (net) 90,000
through profit or loss. Revaluation surplus 20,000
d. None, all the statements are correct.
Which of the following is correct regarding recording
the sale?
12. The revaluation surplus at the end of the current year
a. The gain that should be recorded in profit and loss
is
is P30,000
a. P140,000 c. P75,000
b. The gain that should be recorded in other
b. P100,000 d. P 0
comprehensive income is P10,000
c. The gain that should be recorded in other
13. PFRS 13 defines fair value as current exit price,
comprehensive income is P30,000
whereas depreciated replacement cost measures the
d. The gain that should be recorded in profit and loss
entry price for an asset. In accordance with PIC Q&A
is P10,000; the P20,000 revaluation surplus may
No. 2018-3, when can depreciated replacement cost be
be transferred to retained earnings.
used to measure the fair value of an item of property,
plant and equipment?
18. If items of property, plant and equipment are stated at
a. Only when the entry price equals a current exit
revalued amounts, the following shall be disclosed
price.
except
b. Only when the entry price is lower than a current
a. Whether an independent valuer was involved.
exit price.
b. For each revalued class of property, plant and
c. Under no circumstances.
equipment, the carrying amount that would have
d. In all circumstances.
been recognized had the assets been carried under
the cost model.
c. The revaluation surplus, indicating the change for
Use the following information for next two questions.
the period and any restrictions on the distribution
An entity has the following information at the beginning of of the balance to shareholders.
the current year relating to its land and building. d. The expected date of the next revaluation.
Land P 20,000,000 J - end of FAR.07 - J
Building 450,000,000
Accumulated depreciation 75,000,000
There were no additions or disposals during the year.
Depreciation is computed using straight line method over
15 years for building. On June 30 of the current year, the
land and building were revalued as follows:

Replacement cost
Land P 35,000,000
Building 600,000,000

Page 3 of 3 www.teamprtc.com.ph FAR.07

Reynaldo R. Ocampo © 2025. This content is protected and may not be shared, uploaded, or distributed.