Question

In accordance with AASB 116 Property Plant and Equipment (PPE) and entity has an option to elect the cost model or fair value (revaluation model) for subsequent measurement of PPE. Where an entity elects to use either cost or fair value as the basis for measuring property, plant and equipment, can it elect to switch to the other method at a later stage.

Answer 1

An entity shall choose cost model ot revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and
equipment.

Cost model
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
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 end of the reporting Period.

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. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways:
(a) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the
carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated depreciation at the date of the revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after  taking into account accumulated impairment losses; or(b) the accumulated depreciation is eliminated against the gross carrying amount of the asset.