Last reviewed: July 2026.
Revaluation surplus is an equity balance arising when property, plant and equipment is measured under the IAS 16 revaluation model and a revaluation increase is recognised in other comprehensive income. It is not revenue, distributable profit or a separate cash fund.
The accounting depends on previous increases or decreases for the same asset, the treatment of accumulated depreciation, deferred tax and what happens when the asset is used or disposed of.
When the revaluation model applies
After recognition, an entity may choose the cost model or revaluation model for an entire class of property, plant and equipment. Revaluations must be sufficiently regular to keep carrying amounts from differing materially from fair value.
Class-wide application
Revaluing only selected profitable or appreciated assets is not permitted. Assets within the same class should be revalued together or within a short rolling programme that keeps values current.
Initial upward revaluation
An increase is generally recognised in other comprehensive income and accumulated in revaluation surplus:
- Debit property, plant and equipment
- Credit revaluation surplus through OCI
However, an increase reversing a previous decrease recognised in profit or loss is recognised in profit or loss to that extent.
Initial downward revaluation
A decrease is generally recognised in profit or loss. If a surplus exists for the same asset, the decrease is first recognised in OCI to reduce that surplus, with any excess charged to profit or loss.
Worked upward revaluation example
A building has a carrying amount of 600,000 CU and fair value of 750,000 CU. The gross increase is 150,000 CU.
- Debit building 150,000 CU
- Credit revaluation surplus 150,000 CU
Any related deferred tax is accounted for separately under IAS 12.
Accumulated depreciation methods
At the revaluation date, accumulated depreciation can be restated proportionately with the gross carrying amount or eliminated against the gross carrying amount, depending on the revaluation method and asset information.
The resulting net amount must equal the revalued carrying amount.
Depreciation after revaluation
Future depreciation is based on the revalued amount, revised residual value and remaining useful life. This often increases depreciation expense.
See the fixed asset revaluation guide for the full calculation process.
Transfer to retained earnings
IAS 16 permits transfers from revaluation surplus to retained earnings as the asset is used. A common transfer equals the difference between depreciation on the revalued amount and depreciation on original cost.
The transfer is made directly within equity and does not pass through profit or loss.
Transfer on disposal
When the asset is derecognised, the remaining related surplus may be transferred directly to retained earnings. It is not recycled through profit or loss.
Review the fixed asset disposal entries guide.
Deferred tax effect
A revaluation can create a taxable temporary difference because the accounting carrying amount increases while the tax base may not. The related deferred tax is recognised consistently with the revaluation, commonly in OCI.
The net equity increase is therefore lower than the gross revaluation increase.
Worked depreciation transfer example
After revaluation, annual depreciation is 30,000 CU compared with 20,000 CU under cost. The entity may transfer 10,000 CU annually from revaluation surplus to retained earnings.
- Debit revaluation surplus 10,000 CU
- Credit retained earnings 10,000 CU
Revaluation decreases after previous increases
Track surplus by asset or appropriate unit so that a later decrease is matched correctly. A general reserve for the whole class should not be used to absorb a decrease on an unrelated asset without support.
Revaluation surplus and dividends
Whether a revaluation surplus is legally distributable depends on local company law. Accounting classification as equity does not automatically make it available for dividends.
The dividend accounting guide explains the distinction between accounting equity and authorised distributions.
Impairment after revaluation
Impairment of a revalued asset is treated as a revaluation decrease to the extent of an existing surplus for that asset, with excess recognised in profit or loss under the applicable requirements.
Statement of changes in equity
Present opening surplus, OCI increases or decreases, transfers to retained earnings, tax effects and closing balance. The movement should reconcile to asset notes and OCI.
Revaluation surplus by asset class
Maintain a detailed schedule linking each asset, valuation date, gross increase, tax effect, depreciation transfer and disposal transfer to the total reserve. A single unexplained equity balance is not sufficient control.
Foreign-currency assets
When a revalued asset belongs to a foreign operation, translation differences and revaluation movements are separate OCI components. The entity should avoid combining them in one reserve without a clear reconciliation.
Frequency and valuation governance
Management should define how often fair values are assessed, which assets require external valuation and how valuation assumptions are challenged. Material market changes can require revaluation before the normal cycle.
Disclosure checklist
- effective revaluation date;
- whether an independent valuer was involved;
- carrying amount under the cost model where required;
- revaluation surplus movement and restrictions;
- valuation techniques and significant inputs where applicable;
- depreciation and impairment effects.
Use the financial statements guide for presentation and note linkage.
Common mistakes
- crediting profit instead of OCI;
- revaluing selected assets rather than a class;
- ignoring a previous decrease in profit or loss;
- failing to update depreciation;
- recycling surplus through profit on disposal;
- ignoring deferred tax;
- assuming the surplus represents cash or distributable profit.
Key takeaway
Revaluation surplus records qualifying IAS 16 increases within equity. Track it by asset, update depreciation and tax, and use direct equity transfers rather than profit-or-loss recycling.
Official references: IAS 16 Property, Plant and Equipment and IAS 8 Basis of Preparation of Financial Statements.