Financial Accounting · Depreciation

Revaluation of Non-Current Assets under IAS 16

Updated 11 October 2026 · Fact-checked

Under the IAS 16 revaluation model, you carry an asset at fair value less later depreciation. A gain goes to other comprehensive income and the revaluation surplus in equity. Then you depreciate the new carrying amount over the remaining life. On disposal, the surplus moves to retained earnings.

Understand Revaluation of Non-Current Assets

IAS 16 lets you choose how to measure property, plant and equipment after you first record it at cost. The cost model keeps cost less accumulated depreciation and impairment. The revaluation model carries the asset at its fair value at the revaluation date, less any later depreciation and impairment.

Why use it? Property often rises in value. Under the cost model, the statement of financial position can show old, low figures. Revaluation gives users a more current number.

There are rules. Fair value must be reliably measurable. Revaluations must be regular enough that the carrying amount does not differ materially from fair value. If you revalue one asset, you must revalue the whole class of assets it belongs to (for example, all land and buildings). You cannot pick only the assets that have gone up.

A revaluation gain is not profit from trading. It is credited to other comprehensive income and accumulated in equity as the revaluation surplus. A fall in value is different. First it reduces any surplus held for that same asset. Any excess is an expense in profit or loss. Where a fall was previously charged to profit or loss, a later rise is credited to profit or loss up to the amount previously charged, and any excess goes to the surplus.

After revaluation, you depreciate the revalued amount over the remaining useful life. Depreciation is higher if the value rose. The surplus can be transferred to retained earnings as the asset is used (the excess depreciation) or on disposal. This transfer goes through equity and does not pass through profit or loss.

Key formulas to remember

Revaluation surplus: Surplus = Fair value − Carrying amount before revaluation; Carrying amount = cost − accumulated depreciation. Credit the revaluation surplus (OCI) if positive.
Revaluation journal (increase, asset with accumulated depreciation): Dr Asset (cost) with the cost adjustment; Dr Accumulated depreciation (eliminate it); Cr Revaluation surplus; A simple way: remove accumulated depreciation, restate the asset to fair value, and credit the difference to the surplus.
Depreciation after revaluation: Annual depreciation = Revalued amount ÷ Remaining useful life (straight-line, no residual value); Use the remaining life at the revaluation date, not the original total life.
Annual transfer of excess depreciation: Transfer = Depreciation on revalued amount − Depreciation on original cost; Dr Revaluation surplus, Cr Retained earnings. Optional policy in IAS 16, shown in equity only.
Surplus on disposal: Profit or loss = Proceeds − Carrying amount; then transfer remaining surplus to retained earnings; Use the revalued carrying amount. The transfer is within equity, not in profit or loss.

How to solve Revaluation of Non-Current Assets questions

Follow the same order each time. It keeps the double entry clear and stops you mixing up cost-based and revalued figures.

1Find the carrying amount just before revaluation: cost less accumulated depreciation up to the revaluation date. Include depreciation for the part-year if the date is mid-year.
2Compare it with fair value. The difference is the gain (surplus) or loss.
3If a gain, credit the revaluation surplus (OCI). Debit the asset and clear accumulated depreciation so the asset equals fair value. If a loss, check whether a surplus exists for that asset before charging profit or loss.
4Reset the depreciation base: revalued amount ÷ remaining useful life (less any residual value).
5Calculate the depreciation expense for the year, splitting before and after the revaluation date if needed.
6If asked, calculate the excess depreciation transfer from surplus to retained earnings.
7On disposal, use the revalued carrying amount to get profit or loss, then move any remaining surplus to retained earnings.
8Write the closing figures for the statement of financial position: asset carrying amount and revaluation surplus in equity.

Quickest way: Carrying amount, gain, new base

When to use it: Use it for multiple-choice and number-entry questions where you only need the surplus, depreciation or closing balance.

Work out carrying amount at the revaluation date in one line.
Subtract it from fair value to get the surplus.
Divide fair value by remaining life for the new annual charge.
Closing carrying amount = fair value − depreciation since revaluation.
Closing surplus = surplus − any transfer or disposal release.
Check the answer asks for the amount in equity, OCI, or profit or loss. They differ.

Common mistakes in Revaluation of Non-Current Assets

Taking a revaluation gain to profit or loss.
Students treat any gain as income.
Fix: Credit the gain to OCI and the revaluation surplus unless it reverses an earlier loss on the same asset that was charged to profit or loss.
Depreciating the revalued amount over the original total life.
Students forget life changes meaning from the revaluation date.
Fix: Use the remaining useful life at the revaluation date.
Calculating the surplus against cost instead of carrying amount.
Students ignore accumulated depreciation.
Fix: Always compare fair value with cost less accumulated depreciation to date.
Revaluing only one asset in a class.
Students think revaluation is chosen asset by asset.
Fix: Remember the whole class must be revalued together. Different classes may use different models.
Running the surplus through profit or loss on disposal.
Students think the surplus becomes realised profit in the income statement.
Fix: Transfer the remaining surplus to retained earnings within equity. Profit or loss on disposal is proceeds minus revalued carrying amount.
Revaluing land and then depreciating it.
Students apply the building rule to the whole property.
Fix: Land normally has an unlimited life and is not depreciated. Split land and buildings if the question does.

Worked examples

Example 1

On 1 January 20X1 a company bought a building for $400,000 with a 20-year life and no residual value. It uses straight-line depreciation. On 31 December 20X3 the building is revalued to $456,000. The remaining life is 17 years. Show the revaluation surplus, the depreciation for 20X4 and the carrying amount at 31 December 20X4.

Show the solution

Annual depreciation on cost = $400,000 ÷ 20 = $20,000.
Accumulated depreciation at 31 December 20X3 = 3 × $20,000 = $60,000.
Carrying amount before revaluation = $400,000 − $60,000 = $340,000.
Surplus = $456,000 − $340,000 = $116,000.
Journal: Dr Building (cost) $56,000, Dr Accumulated depreciation $60,000, Cr Revaluation surplus $116,000. The building then stands at $456,000 with no accumulated depreciation.
Depreciation for 20X4 = $456,000 ÷ 17 = $26,823.53, which is $26,824 to the nearest dollar.
Carrying amount at 31 December 20X4 = $456,000 − $26,824 = $429,176.

Answer: Revaluation surplus $116,000. 20X4 depreciation $26,824. Carrying amount at 31 December 20X4 $429,176.

Example 2

Using the building in the first example, the company transfers the excess depreciation to retained earnings each year. At 31 December 20X5 it sells the building for $440,000. Show the profit or loss on disposal and the amount transferred from the revaluation surplus to retained earnings on disposal. Assume 20X4 and 20X5 depreciation are both $26,824 and an excess-depreciation transfer was made each year.

Show the solution

Carrying amount at 31 December 20X5 = $456,000 − (2 × $26,824) = $456,000 − $53,648 = $402,352.
Profit or loss on disposal = $440,000 − $402,352 = $37,648 profit.
Excess depreciation each year = $26,824 − $20,000 = $6,824.
Transfers made in two years = 2 × $6,824 = $13,648.
Remaining surplus = $116,000 − $13,648 = $102,352.
On disposal, transfer $102,352 from revaluation surplus to retained earnings: Dr Revaluation surplus, Cr Retained earnings. This is not in profit or loss.

Answer: Profit on disposal $37,648 in profit or loss. Transfer $102,352 from revaluation surplus to retained earnings.

Exam tips

Read the question for the revaluation date. Include depreciation up to that date before finding the surplus.
Check whether the answer wanted is surplus, OCI, depreciation, carrying amount or equity balance. Many options are traps from the other figures.
For multiple response items, test each statement: whole class revalued, gain in OCI, depreciation on revalued amount, no transfer through profit or loss.
In number entry, round only at the end and follow the requested decimals.
Remember land is not depreciated. Split a combined property figure if given.

Practice questions from Depreciation

Revaluation of Non-Current Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Revaluation of Non-Current Assets: frequently asked questions

What is the difference between the cost model and the revaluation model?

The cost model carries an asset at cost less accumulated depreciation and impairment. The revaluation model carries it at fair value at the revaluation date less later depreciation and impairment. The revaluation model creates a revaluation surplus in equity when values rise.

Where is the revaluation surplus shown?

It is recorded in other comprehensive income for the year. It is accumulated in equity as the revaluation surplus. It does not appear in the profit for the year.

Do I depreciate a revalued asset?

Yes, if it is a depreciable asset. Depreciate the revalued carrying amount over the remaining useful life, less any residual value. Land is normally not depreciated.

What happens to the surplus when I sell the asset?

Calculate profit or loss as proceeds less revalued carrying amount. Then transfer the remaining surplus for that asset to retained earnings within equity. It does not pass through profit or loss.

Can I revalue just one building?

No. If you revalue one asset, you must revalue all assets in the same class. Revaluations must also be kept up to date, so the carrying amount is not materially different from fair value.