Last reviewed: July 2026.
Fixed Asset Valuation Bases under IAS 16 and IFRS 13 modernises the old property-valuation summary by separating accounting measurement bases, valuation techniques and impairment requirements.
Valuation starts with the applicable standard
The phrase fixed asset valuation can refer to initial cost, subsequent cost-model carrying amount, revalued amount, fair value used in a revaluation, recoverable amount for impairment or a specialist valuation technique. These are not interchangeable. IAS 16 determines when property, plant and equipment is recognised and whether a class uses the cost or revaluation model. IFRS 13 supplies the fair-value measurement framework when fair value is required or permitted, while IAS 36 sets the impairment ceiling through recoverable amount.
Initial measurement at cost
An item of property, plant and equipment is initially measured at cost when recognition criteria are met. Cost includes purchase price, directly attributable costs needed to make the asset capable of operating as intended, and qualifying estimates of dismantling or restoration obligations. It excludes abnormal waste, general overhead and operating losses after the asset is available for use. Where payment is deferred or assets are exchanged, other IFRS requirements may affect measurement. The initial cost becomes the starting point for subsequent accounting.
The cost model
Under the cost model, carrying amount equals cost less accumulated depreciation and accumulated impairment losses. The model does not mean values are never reviewed: useful lives, residual values and methods are reassessed, impairment indicators are considered, and replacement components are accounted for. Market increases are not recognised merely because an external appraisal exists. Cost-model records therefore require a reliable asset register, component accounting, depreciation schedules, impairment controls and derecognition of replaced or disposed assets.
The revaluation model
When fair value can be measured reliably, IAS 16 permits a class of assets to be carried at revalued amount less subsequent depreciation and impairment. The policy applies to an entire class rather than selected assets chosen to improve the balance sheet. Revaluations must be sufficiently regular so carrying amounts do not differ materially from fair value. The frequency depends on volatility. Valuation dates, techniques, significant assumptions and the treatment of accumulated depreciation should be documented and reconciled.
Fair value under IFRS 13
IFRS 13 defines fair value as the exit price in an orderly transaction between market participants at the measurement date. The valuation uses market-participant assumptions, the principal or most advantageous market and appropriate valuation techniques. Observable inputs are preferred when available. Fair value is not entity-specific value in use, forced-sale value or historical cost adjusted by management preference. The valuation file should identify the unit of account, market, highest and best use where relevant, technique, inputs and hierarchy level.
Market, income and cost approaches
The market approach uses prices and comparable transactions; the income approach converts future cash flows or income to a present amount; and the cost approach reflects the amount required to replace an asset’s service capacity, adjusted for obsolescence. Technique selection depends on asset characteristics and available information. Multiple techniques may be used as a reasonableness check. Avoid mixing assumptions from different bases. Changes in technique should improve reliability and be explained rather than used to obtain a preferred result.
Depreciated replacement cost
Depreciated replacement cost is a cost-approach technique often relevant when specialised assets rarely trade in an active market. Estimate the current cost of an asset providing equivalent service capacity, then adjust for physical deterioration and functional or economic obsolescence. It is not simply original cost indexed for inflation and not the same as accumulated accounting depreciation. Capacity, design, technology, location and optimisation assumptions require specialist evidence. The resulting measure must still meet the fair-value objective when used for IAS 16 revaluation.
Accounting for revaluation increases
A revaluation increase is generally recognised in other comprehensive income and accumulated in a revaluation surplus, except to the extent it reverses a prior decrease recognised in profit or loss for the same asset. Future depreciation is based on the revalued amount. An entity may transfer part of the surplus to retained earnings as the asset is used or when derecognised, subject to its policy and legal context. The transfer is within equity and does not pass through profit or loss.
Accounting for revaluation decreases
A decrease is generally recognised in profit or loss, except to the extent of an existing revaluation surplus for the same asset, in which case it is recognised in other comprehensive income against that surplus. Determine whether the decline also reflects impairment and apply the interaction between IAS 16 and IAS 36 carefully. Keep asset-level or class-level records that support the available surplus. Do not offset unrelated increases and decreases merely because assets belong to the same general category.
Impairment and recoverable amount
IAS 36 requires an asset not to be carried above recoverable amount, the higher of value in use and fair value less costs of disposal. This test is distinct from a routine revaluation. Cost-model assets may be impaired, and revalued assets can also require impairment analysis. Identify indicators, cash-generating units and consistent carrying amounts. After impairment, revise future depreciation. Where permitted, a later reversal is limited so the asset does not exceed the carrying amount that would have existed without impairment.
Governance, disclosures and reconciliation
Approve the model by class of asset, maintain a valuation timetable, appoint competent specialists where needed and challenge assumptions for market evidence, obsolescence and condition. Reconcile valuation reports to the fixed-asset register and ledger, including additions, disposals, components, accumulated depreciation, tax effects and reserve movements. Disclose measurement bases, revaluation dates, involvement of independent valuers, carrying amounts under the cost model where required, revaluation surplus movements and material fair-value information. Archive reports and review sign-offs.
Related Accounting Guides
- Fixed Asset Valuation under IAS 16 and IAS 36
- Revaluation Reserve Accounting under IAS 16
- Fixed Asset Register and General Ledger Reconciliation
Authoritative References
- IAS 16 Property, Plant and Equipment — Official recognition, measurement, depreciation and revaluation principles for property, plant and equipment.
- IFRS 13 Fair Value Measurement — Official framework defining fair value as an exit price when another IFRS requires or permits fair value.
- IAS 36 Impairment of Assets — Official impairment principles requiring assets not to exceed recoverable amount.