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Commission Regulation
(EC) No 1725/2003 of 29 September
2003 amended by
Regulation (EC) No 2238/2004
and
Regulation (EC) No 1910/2005.
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Measurement after
Recognition
29. An entity shall
choose either the cost model in paragraph 30 or the revaluation
model in paragraph 31 as its accounting policy and shall
apply that policy to an entire class of property, plant and equipment.
Cost Model
30. After
recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any
accumulated depreciation and any accumulated
impairment losses.
Revaluation Model
31. After
recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably
shall be carried at a revalued amount, being its
fair value at the date of the revaluation less
any subsequent accumulated depreciation and subsequent
accumulated impairment losses. Revaluations shall be made
with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be
determined using fair value at the balance sheet
date.
32. The fair value
of land and buildings is usually determined from market-based
evidence by appraisal that is normally undertaken by
professionally qualified valuers. The fair value of items of
plant and equipment is usually their market value determined
by appraisal.
33. If there is no
market-based evidence of fair value because of the specialised
nature of the item of property, plant and equipment and the
item is rarely sold, except as part of a continuing business,
an entity may need to estimate fair value using an income or a
depreciated replacement cost approach.
34. The frequency of
revaluations depends upon the changes in fair values of the
items of property, plant and equipment being revalued. When
the fair value of a revalued asset differs materially from its
carrying amount, a further revaluation is required. Some items
of property, plant and equipment experience significant and
volatile changes in fair value, thus necessitating annual
revaluation. Such frequent revaluations are unnecessary for
items of property, plant and equipment with only insignificant
changes in fair value. Instead, it may be necessary to revalue
the item only every three or five years.
35. When an item of
property, plant and equipment is revalued, any accumulated
depreciation at the date of the revaluation is treated in one
of the following ways:
(a) restated
proportionately with the change in the gross carrying amount
of the asset so that the carrying amount of the asset after
revaluation equals its revalued amount. This method is often
used when an asset is revalued by means of applying an index
to its depreciated replacement cost.
(b) eliminated
against the gross carrying amount of the asset and the net
amount restated to the revalued amount of the asset.
This method is often
used for buildings. The amount of the adjustment arising on
the restatement or elimination of accumulated depreciation
forms part of the increase or decrease in carrying amount that
is accounted for in accordance with paragraphs 39 and 40.
36. If an item of
property, plant and equipment is revalued, the entire class
of property, plant and equipment to which that asset belongs shall be revalued.
37. A class of
property, plant and equipment is a grouping of assets of a
similar nature and use in an entity’s operations. The
following are examples of separate classes:
(a) land;
(b) land and
buildings;
(c) machinery;
(d) ships;
(e) aircraft;
(f) motor vehicles;
(g) furniture and
fixtures; and
(h) office equipment.
38. The items within
a class of property, plant and equipment are revalued
simultaneously to avoid selective revaluation of assets and
the reporting of amounts in the financial statements that are
a mixture of costs and values as at different dates. However,
a class of assets may be revalued on a rolling basis provided
revaluation of the class of assets is completed within a short
period and provided the revaluations are kept up to date.
39. If an asset’s
carrying amount is increased as a result of a revaluation,
the increase shall be credited directly to equity under the heading of revaluation surplus. However, the
increase shall be recognised in profit or loss
to the extent that it reverses a revaluation decrease
of the same asset previously recognised in profit or loss.
40. If an asset’s
carrying amount is decreased as a result of a revaluation,
the decrease shall be recognised in profit or loss. However,
the decrease shall be debited directly to equity under the heading of revaluation surplus to the extent of any
credit balance existing in the revaluation
surplus in respect of that asset.
41. The revaluation
surplus included in equity in respect of an item of property,
plant and equipment may be transferred directly to retained
earnings when the asset is derecognised. This may involve
transferring the whole of the surplus when the asset is
retired or disposed of. However, some of the surplus may be
transferred as the asset is used by an entity. In such a case,
the amount of the surplus transferred would be the difference
between depreciation based on the revalued carrying amount of
the asset and depreciation based on the asset’s original
cost. Transfers from revaluation surplus to retained earnings
are not made through profit or loss.
42. The effects of
taxes on income, if any, resulting from the revaluation of
property, plant and equipment are recognised and disclosed in
accordance with IAS 12 Income Taxes.
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