Last reviewed: July 2026.
IAS 16 permits an entity to choose the cost model or revaluation model as its accounting policy for a class of property, plant and equipment whose fair value can be measured reliably. The policy must be applied to the entire class, not selected assets chosen to improve reported values.
Under the revaluation model, assets are carried at revalued amount less subsequent depreciation and impairment. Revaluations must be sufficiently regular so carrying amounts do not differ materially from fair value at the reporting date.
Cost model versus revaluation model
- Cost model: cost less accumulated depreciation and impairment.
- Revaluation model: fair value at revaluation date less later depreciation and impairment.
The accounting policy is selected by class, such as land, buildings, machinery or office equipment, based on the entity’s facts and disclosures.
Recognition of increases and decreases
| Situation | Primary recognition | Exception |
|---|---|---|
| Revaluation increase | Other comprehensive income and revaluation surplus | Profit or loss to the extent it reverses a prior decrease for the same asset. |
| Revaluation decrease | Profit or loss | Other comprehensive income to the extent of an existing surplus for the same asset. |
| Depreciation after revaluation | Based on revalued amount, residual value and remaining useful life | Review estimates at least at each year end. |
| Surplus transfer | May remain in revaluation surplus | May be transferred within equity as the asset is used or derecognised; not recycled through profit or loss. |
Revalue the whole class
If one asset is revalued, the entire class should be revalued to prevent selective reporting of mixed amounts. Assets within a class may be revalued on a rolling basis only when completed within a short period and kept up to date.
Classes should group assets of similar nature and use, not assets selected solely because their values increased.
Worked revaluation increase
A building has cost of 1,000,000 CU and accumulated depreciation of 200,000 CU. Its carrying amount is 800,000 CU. An independent valuation determines fair value of 950,000 CU.
The increase is 150,000 CU. Assuming no earlier decrease for this asset:
- Debit property, plant and equipment 150,000 CU
- Credit revaluation surplus through other comprehensive income 150,000 CU
The exact gross-cost and accumulated-depreciation entries depend on the method used to restate the records.
Treatment of accumulated depreciation
At revaluation, accumulated depreciation may be restated consistently with the change in gross carrying amount, or eliminated against the gross carrying amount before the net amount is restated.
The IASB clarified that accumulated depreciation is the difference between gross and net carrying amounts after considering the valuation technique. Do not force a proportionate method when the valuation evidence does not support it.
Worked revaluation decrease
An asset has carrying amount 500,000 CU and fair value 440,000 CU. It has a 25,000 CU revaluation surplus relating to the same asset.
- Recognise 25,000 CU in other comprehensive income, reducing the surplus.
- Recognise the remaining 35,000 CU in profit or loss.
A surplus from a different asset cannot automatically absorb the decrease.
Depreciation after revaluation
Future depreciation is based on the revalued amount, revised residual value and remaining useful life. If the building above has residual value 50,000 CU and remaining life of 18 years, annual straight-line depreciation is:
(950,000 − 50,000) ÷ 18 = 50,000 CU
Compare with the IAS 16 depreciation guide.
Transfer of revaluation surplus
IAS 16 permits transfer of surplus directly to retained earnings when the asset is derecognised. An entity may also transfer the difference between depreciation based on the revalued amount and depreciation based on original cost as the asset is used.
The transfer is within equity and does not pass through profit or loss.
Fair value and valuation evidence
Use market evidence and appropriate valuation techniques. Document valuation date, valuer competence, assumptions, inputs, asset condition and highest-value sensitivities. IFRS 13 may apply to fair value measurement and disclosure.
Reassess frequency based on volatility. Land and buildings in active markets may require more frequent valuation than specialised equipment with stable values.
Impairment after revaluation
Revaluation does not remove the need to consider impairment. Apply IAS 36 when indicators exist or testing is required. The interaction between impairment and revaluation depends on previous increases or decreases for the asset.
Review the broader fixed asset valuation guide.
Disposal of a revalued asset
Calculate gain or loss using carrying amount at disposal. Remove the asset and accumulated depreciation, record proceeds and recognise the difference in profit or loss. Any remaining revaluation surplus may be transferred directly to retained earnings.
See the worked fixed asset disposal entries.
Disclosure and control checklist
- identify the revalued class and policy;
- document effective date and valuation method;
- record carrying amount under the cost model where required;
- reconcile opening and closing balances;
- disclose revaluation surplus restrictions where relevant;
- update useful lives, residual values and depreciation;
- review tax effects and deferred tax separately;
- ensure material valuation uncertainty is communicated.
Apply the materiality judgement process when determining presentation and disclosure detail.
Common mistakes
- revaluing only assets whose values increased;
- crediting every increase directly to profit;
- using a surplus from another asset to offset a decrease;
- failing to update depreciation after revaluation;
- recycling revaluation surplus through profit on disposal;
- using stale valuations in volatile markets;
- ignoring impairment and deferred tax.
Key takeaway
The IAS 16 revaluation model is a class-wide measurement policy. Use reliable fair values, recognise increases and decreases in the correct location, and update depreciation, disclosures and controls.
Official references: IAS 16 Property, Plant and Equipment and IASB clarification of the revaluation method.