Cost vs revaluation model

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Holly
Holly Registered Posts: 16 New contributor 🐸
Hi all,

Please can someone explain in leyman's terms the difference between the cost model and the revaluation model? I'm rather confused!

Thanks

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  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Have a look at this article which might help.

    Kind regards
    Steve
  • sdv
    sdv Registered Posts: 585 Epic contributor 🐘
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    Holly wrote: »
    Hi all,

    Please can someone explain in leyman's terms the difference between the cost model and the revaluation model? I'm rather confused!

    Thanks

    Steve's atricles are always excellent and very easy to follow.

    I have looked up IAS16 and an alternative presentation on the web.

    The following summary may be helpful, but it is not as detailed as Steve's article.

    IAS 16 permits two accounting models:

    • Cost Model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30]

    • Revaluation Model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. [IAS 16.31]

    Click Here

    From the above link




    (i) Cost Model

    AASB 116 p. 30: asset is carried at its cost less any accumulated depreciation or impairment loss

    Asset continues to be recorded at original cost

    Adjustments are only made for depreciation and impairment losses




    (ii) Revaluation Model


    Measurement based on fair value

    AASB 116 doesn’t specify how often to revalue

    fair value of land and buildings should be market based, with a professional appraisal

    Applied to a class of assets






    Revaluation Increments



    Accounting is done on an asset-by-asset basis, even though revaluation is done on a class-by-class basis

    increase is taken directly to equity, rather than the income statement
    i.e. asset revaluation reserve
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