How to Revalue an Asset
Use a market-based appraisal by a qualified valuation specialist to determine the fair value of a fixed asset. If an asset is of such a specialized nature that a market-based fair value cannot be obtained, then use an alternative method to arrive at an estimated fair value. Examples of such methods are using discounted future cash flows or an estimate of the replacement cost of an asset.
Accounting for a Revalued Asset
If the election is made to use the revaluation model and a revaluation results in an increase in the carrying amount of a fixed asset, recognize the increase in other comprehensive income and accumulate it in equity in an account entitled “revaluation surplus.” However, if the increase reverses a revaluation decrease for the same asset that had been previously recognized in profit or loss, recognize the revaluation gain in profit or loss to the extent of the previous loss (thereby erasing the loss).
If a revaluation results in a decrease in the carrying amount of a fixed asset, recognize the decrease in profit or loss. However, if there is a credit balance in the revaluation surplus for that asset, recognize the decrease in other comprehensive income to offset the credit balance. The decrease recognized in other comprehensive income decreases the amount of any revaluation surplus already recorded in equity.
If a fixed asset is derecognized, transfer any associated revaluation surplus to retained earnings. The amount of this surplus transferred to retained earnings is the difference between the depreciation based on the original cost of the asset and the depreciation based on the revalued carrying amount of the asset.
