International Accounting Case

Chapter 4

4. IAS 16 allows two treatments for reporting fixed assets on balance sheets subsequent to their acquisition: the cost model and the revaluation model.

　　Under the cost model, an item of property, plant, and equipment is carried on the balance sheet at cost less accumulated depreciation and any accumulated impairment losses.

　　Under the revaluation model, an item of property, plant, and equipment is carried at a revalued amount, measured as fair value at the date of revaluation, less any subsequent accumulated depreciation and any accumulated impairment losses.

Selection of assets to be revaluated: land; land and buildings; machinery; office equipment; furniture and fixtures; motor vehicles; ships; and aircraft.

The frequency of revaluation: Once an enterprise has opted for the revaluation model, it has an obligation to keep the valuations up to date.

6. To the extent that there is a previous revaluation surplus with respect to an asset, a decrease first should be charged against it and any excess of deficit over that previous surplus should be expensed.

　　 To the extent that a previous revaluation resulted in a charge to expense, a sub-sequent upward revaluation first should be recognized as income to the extent of the previous expense and any excess should be credited to other comprehensive income in equity.

When an item of property, plant, and equipment is comprised of significant parts for which different depreciation methods or useful lives are appropriate, each part must be depreciated separately. This is commonly referred to as component depreciation. Components can be physical such as an aircraft engine or non-physical such as a major inspection. Component depreciation is not commonly used under U.S. GAAP.