Question

AASB 116 requires that ‘revaluations shall be made with sufficient regularity to ensure that the carrying amount does not significantly differ from that which would be determined using fair value at the end of the reporting period.’

Required: Do you think there are some implications for the upward revaluations of property plant and equipment on companies’ profit? Justify your answer.

Answer 1

An increase in the carrying amount of an asset arising on revaluation should be credited directly to revaluation surplus. Since the revaluation Surplus diectly credited to the revaluation reserve, the upward revaluation of PPE doesnot affect the Profit of the Company directly. But the increased revaluation idirectly affect the profits of the company while charging depreciation of PPE on the revalued amount.

There are some exception to the above rule

Exception: The increase should be recognised in the Statement of Profit and Loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in the Statement of Profit and Loss.

In that case it affect the Profits of the company.