ifrs asset revaluations october 2015

IFRSASSET REVALUATION

FIXED ASSETS

C o s t M e t h o d

R e v a l u a t i o n M e t h o d

REVALUATION

G a i n st o

A O C I( R e v a l u a t i o n S u r p l u s )

Under the revaluation method, an unrealized gain is posted to an accumulated other comprehensiveincome account.

REVALUATION

O p t i o n a l :C l o s e

A c c u m u l a t e dD e p r e c i a t i o n

REVALUATION

E x a m p l e :

M a c h i n e r y $ 1 0 0 , 0 0 0A / D $ 2 0 , 0 0 0F a i r V a l u e $ 1 1 0 , 0 0 0

For example, assume an asset with a basis of $100,000 and accumulated depreciation of $20,000is appraised at $110,000

REVALUATION

E x a m p l e :

M a c h i n e r y $ 1 0 , 0 0 0A / D $ 2 0 , 0 0 0 R e v a l S u r p l u s $ 3 0 , 0 0 0

One option is to close the accumulated deprecation account as above

REVALUATION

E x a m p l e :

M a c h i n e r y $ 1 1 0 , 0 0 0A / D $ 0 , 0 0 0R e v a l S p l s $ 3 0 , 0 0 0

Leaving the following on the balance sheet.

REVALUATION

A l t e r n a t i v e :A d j u s t

A c c u m u l a t e dD e p r e c i a t i o n

REVALUATION

E x a m p l e :

F a i r V a l u e $ 1 1 0 , 0 0 0A d j B a s i s $ 8 0 , 0 0 01 1 0 / 8 0 = 1 . 3 7 5

A revaluation to $110,000 is equal to 137.5% of the adjusted basis of the asset ($100,000 -$20,000 = $80,000)

REVALUATION

E x a m p l e :M a c h i n e r y $ 1 0 0 , 0 0 0 * 1 . 3 7 5 = $ 1 3 7 , 5 0 0A / D $ 2 0 , 0 0 0 * 1 . 3 7 5 = $ 2 7 , 5 0 0R e v a l u e d A d j u s t e d B a s i s $ 1 1 0 , 0 0 0

By adjusting both the basis and the accumulated deprecation, the adjusted basis of the asset willequal the revalued amount of $110,000.

REVALUATION

E x a m p l e :

M a c h i n e r y $ 3 7 , 5 0 0 A / D $ 7 , 5 0 0 R e v a l S u r p l u s $ 3 0 , 0 0 0

The entry above would be posted to adjust the balance sheet.

REVALUATION

G a i n R e v e r s a lt o

A O C I

A 'gain reversal' occurs when an asset that was written up in a prior period is later written down. To theextent that a gain was recorded in a prior period a loss is posted to revaluation surplus. What happens

when the entire gain is reversed? See the next slide.

REVALUATION

L o s s e st o

E x p e n s e

After previously recorded gains are reversed, any further declines in market value are recognized on theincome statement.

REVALUATIONR e c o v e r

" E x p e n s e d " L o s s e sT o

I n c o m e S t a t e m e n t

Recoveries on impaired assets are posted to the income statement to the extent that a loss on that assetwas posted to the income statement in a prior period. Anything else goes to AOCI. (IAS 16).

REVALUATION

C l a s sB y

C l a s s

If management chooses to use the revaluation method, the method is applied on a class by class basis. That means that you can't pick and choose individual assets to revalue. If you want to revalue one

asset you have to revalue all of the other assets in that class.

REVALUATION

K e e p T h e A s s e t sS t a t e d A tF a i r V a l u e

If management chooses to use the revaluation method, there is no rule about the frequency ofrevaluation. In other words, you don't have to do it every year. However, the balance sheet values

should always be reasonably accurate. If they are not you must revalue.

COST

O n l yR e c o r dL o s s e s

( I m p a i r m e n t s )

COST

P o s t T o T h eI n c o m e S t a t e m e n t

COST

C a n B eD e p r e c i a t i o n

O rL o s s

It is acceptable to record an impairment loss as depreciation expense. Also acceptable is to record thewrite down separately on the income statement.

COST

Y o u C a nR e c o v e r . . .

COST

. . . B u t W a t c hH i s t o r i c a l C o s t

D e p r e c i a t i o n

If the asset had not been impaired depreciation would have continued at a rate greater than that of theimpaired asset value. Therefore, when recovering a cost method impairment, you can't recover abovewhat the adjusted basis of the asset would have been had the impairment not been recorded in the first

place.

COST

R e c o v e r T oI n c o m e S t a t e m e n t

Cost method recoveries are recognized in the income statement. AOCI is only for revaluation methodassets.

INVESTMENT ASSETS

C o s t M e t h o d

F a i r V a l u e M e t h o d

For this purpose, an investment asset is a tangible asset, such as land or an asset that could bedepreciated.

FAIR VALUE METHOD

G a i n s T oI n c o m e

S t a t e m e n t

Not AOCI

FAIR VALUE METHOD

D o N o tD e p r e c i a t e

Cost method investment assets could be subject to depreciation. Why? Because the definition alsoincludes assets that could be rented. If the fair value method is elected for such assets you do not record

depreciation.

COST METHOD

S a m e A sF o r

F i x e d A s s e t s

COST METHOD

M u s tD i s c l o s e

F a i r V a l u e s

A company that chooses to report investment assets under the cost method must still dislose the fairvalues in the income statement.

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