Ias40

GoldenRetreiver

Hi, I wondered if anyone can help me please. Our course notes say that with the fair method of valuation the market value of asset is shown in the BS and the difference shown in revaluation reserve. However, the Osborne book says the difference is shown in the income statement. Which one is correct?

definite.studies

Hi, this is being discussed in the level 4 forum, as part of a broader question.

http://www.aat.org.uk/forums/showthread.php?p=113381

GoldenRetreiver

Ias 40

Hi thanks for showing me this link - I asked our college lecturer about it yesterday and he confirmed the transaction is between the revaluation reserve and non current assets.

jimbob

i was taught to dr income statement
cr revaluation reserve

GoldenRetreiver

Thanks, I spoke to our lecturer and the company secretary from work, it appears you debit non current assets, cr revaluation reserve. However, if you read other books they tell you differently!

Bluewednesday

From IASB website - the standard is IAS16 this is just the relevant excerpt from the standard:

If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in 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. 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 recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

You may have to read this several times for it to go in (I still need to follow it line by line).

If there is ever any doubt the definitive answer can only come from the standard itself. The link that definite.studies put in is excellent as it shows a numerical example which makes it easier to see,

peugeot

I've just been reading this thread and I notice GoldenRetriever is querying "IAS 40 (Investment Properties)" as opposed to "IAS 16 (Property Plant and Equipment)". The link provided in "definite.studies" thread refers to the revaluation method under IAS 16.

Under IAS 40 gains or losses on revaluation of investment properties (which are subject to the revaluation/fair value model) are recognised directly in the income statement - and they are not depreciated. This method is the "fair value model" and is the preferred method in IAS 40. Investment properties are treated differently under IAS than property, plant and equipment because investment properties are being held for their investment potential. IAS 40 gives the opportunity to have an alternative treatment to other "non current assets" which are dealt with in IAS 16.

Under IAS 16 if an asset (not an investment property) is revalued resulting in a revaluation "gain" then this gain is credited to equity under 'revaluation surplus' but only to the extent that it reverses previously recognised losses on that (class of) asset. The Conceptual Framework states that losses (of any nature) must be recognised in the income statement as they arise - thus you are reducing your c/f retained earnings figure. If the asset subsequently rises in market value (a gain), then the gain is credited to the income statement to the value of the previously recognised loss (to 'match' the previous loss), the balance then being credited to Revaluation Surplus in the balance sheet. That is all under IAS 16.

The fair value model under IAS 40 states that gains or losses on revaluation of investment properties are recognised directly in the income statement. If investment property is recognised under the 'cost model' the investment properties are held at cost and depreciated like any other asset.

Kind regards
Steve

Bluewednesday

Well spotted Steve, I should have read the title!