LOS H requires us to:
describe the revaluation model.
a. Assets are reported at the historical/depreciated costs under U.S. GAAP as well as, in most of the cases under IFRS also.
b. However, IFRS allows the assets to be reported at the fair value (based on the revaluation model), but only if the fair value can be measured reliably.
c. According to this method, the asset would be reported at the fair value existing at the date of revaluation. This fair value would be further reduced by the amount of subsequent accumulated depreciation and impairment.
d. There could be two scenarios under the revaluation model, one, in which there is devaluation, and the other, where there is upwards valuation.
e. When there is devaluation in the value of an asset, it should be reported as an item of loss in the income statement. And if there is a subsequent revaluation of the asset, it should be treated as follows:
i. revaluation of the asset up to the amount of loss earlier recognized would be recognized as gain on the income statement, and
ii. any upward revaluation in the asset required, over and above the amount that was recognized as loss earlier should be credited to the revaluation surplus account.
f. If however, there is a revaluation upwards of the asset, to begin with, it should be credited to the ‘revaluation surplus’ account. And if there is a fall in the value of the asset in the subsequent periods, it should be treated as follows:
i. subsequent devaluation up to the balance in the ‘revaluation surplus’ account should be reversed, and
ii. any excess devaluation required should be treated as a loss on the income statement.