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In: Accounting

Outline the rules associated with asset revaluations under the fair value model of AASB116, describing (i)...

Outline the rules associated with asset revaluations under the fair value model of AASB116, describing (i) what movements are recorded, (ii) what happens to the accumulated depreciation account, and (iii) the impact on depreciation expense in subsequent years.

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Expert Solution

(i) An entity is free to choose either Cost Model or Revaluation Model as its accounting policy for property, plant and equipment and as per Revaluation Model property, plant and equipment (PPE) are recorded at revalue amount and whose fair value can be measured reliably. Fair value will be measured at the date of revaluation reduced by any subsequent accumulated depreciation and impairment as well. This revaluation should be done to ensure the carrying amount is based on the fair value of Property, Plant and Equipment at the reporting period.

(ii) Accumulated Depreciation at the date of revaluation of Property, Plant and Equipment will be adjusted to the difference between the Gross Carrying Amount and the Carrying Amount after the effects of Accumulated Impairment Loss. Such difference will be adjusted and eliminated against the gross carrying amount at the reporting period.

(iii) Depreciation shall be allocated systematically over its useful life and useful life and residual value will also be reviewed at the end of each year-end and make required changes in Accounting Policies and Estimates accordingly. Depreciation will be charge on Property, Plant and Equipment even if the Fair Value exceeds the carrying amount of assets at the time of revaluation of assets.


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