Financial Accounting · Tangible non-current assets

Revaluation of Non-Current Assets under IAS 16 for ACCA

Updated 11 October 2026 · Fact-checked

Under IAS 16, you may carry property, plant and equipment at fair value instead of cost. A revaluation gain goes to other comprehensive income and the revaluation surplus in equity. A loss goes to profit or loss, unless it reverses an earlier surplus on the same asset. Depreciation then uses the new carrying amount over the remaining life.

Understand Revaluation of Non-Current Assets

IAS 16 lets a business choose between two measurement models for each class of property, plant and equipment: the cost model (cost less accumulated depreciation and impairment) or the revaluation model (fair value at the revaluation date less later depreciation and impairment). Once you choose the revaluation model, you apply it to the whole class of assets, for example all land and buildings. You cannot pick only the assets that have gone up in value.

When an asset is revalued, you first bring it to its carrying amount, which is cost less accumulated depreciation. Then you compare that with fair value. The difference is the gain or loss. A gain is not realised profit, so it does not go through profit or loss. It is recognised in other comprehensive income and accumulated in equity as the revaluation surplus.

A loss works the other way round, with one exception. If the asset has a revaluation surplus from an earlier revaluation, the loss is first charged against that surplus through other comprehensive income. Only any excess is charged to profit or loss. The reverse also applies. If an earlier loss was charged to profit or loss, a later gain is credited to profit or loss up to the amount of that earlier loss. Any excess goes to the surplus.

After revaluation, depreciation is based on the revalued amount. You spread the new carrying amount, less any residual value, over the remaining useful life. Depreciation therefore usually rises after an upward revaluation. Revaluations must be kept up to date so that the carrying amount is not materially different from fair value. Land is not depreciated, but it can still be revalued.

A common exam approach is to remove the old cost and accumulated depreciation and replace them with the new value. The difference between the two sets of figures is the surplus. Many questions also ask you to transfer an annual amount from the revaluation surplus to retained earnings. This is allowed, not compulsory, and it equals the extra depreciation caused by the revaluation.

Key formulas to remember

Revaluation gain or loss: Gain or (loss) = Fair value − Carrying amount before revaluation; Carrying amount = cost − accumulated depreciation at the revaluation date. Bring depreciation up to date first.
Gain treatment: Dr Asset (cost or valuation) / Cr Revaluation surplus (OCI); If an earlier loss on the same asset went through profit or loss, credit profit or loss first up to that loss.
Loss treatment: Dr Revaluation surplus (up to balance on that asset) / Dr Profit or loss (excess) / Cr Asset; Apply to each asset separately, not to the class as a total.
Depreciation after revaluation: (Revalued amount − Residual value) ÷ Remaining useful life; Land is not depreciated. Where there is a residual value, deduct it first.
Excess depreciation transfer (optional): Dr Revaluation surplus / Cr Retained earnings = Depreciation on revalued amount − Depreciation on original cost; This is a reserve transfer, not part of profit or loss.
Revaluation journals using the gross method: Dr Accumulated depreciation (remove) / Dr or Cr Asset cost (to valuation) / Cr Revaluation surplus; The net effect is that the asset's carrying amount equals fair value and accumulated depreciation is reset to zero.

How to solve Revaluation of Non-Current Assets questions

Use the same sequence for every revaluation question. Do the arithmetic in a working before you write any journal.

1Find the carrying amount at the revaluation date. If the date falls mid-year, charge depreciation up to that date first.
2Write down the fair value or valuation given in the question.
3Subtract the carrying amount from fair value. A positive result is a gain and a negative result is a loss.
4Check whether the asset has an earlier surplus or an earlier loss that went through profit or loss. This decides where the gain or loss goes.
5Post the journal: the asset to its new value and the gain to the revaluation surplus in OCI, or the loss to the surplus and profit or loss as appropriate.
6Recalculate depreciation: new carrying amount, less residual value, divided by remaining useful life. Do not depreciate land.
7If asked, calculate the excess depreciation and transfer it from the revaluation surplus to retained earnings.
8Check the answer: the asset equals the fair value in the statement of financial position, and the surplus appears in equity and OCI.

Quickest way: Carrying amount versus fair value shortcut

When to use it: Use this for multiple choice and number entry questions where you only need the surplus, the new depreciation charge or the carrying amount.

Compute the carrying amount: cost less accumulated depreciation.
Subtract it from the stated valuation to get the surplus (or loss).
Divide the valuation, less any residual value, by the remaining life for next year's depreciation.
For the surplus left after the transfer, subtract the excess depreciation transferred.
Read the question for which figure it wants: surplus, depreciation, carrying amount, or profit or loss charge.

Common mistakes in Revaluation of Non-Current Assets

Taking a revaluation gain to profit or loss.
Students treat any increase in value as income, as they would for a sale.
Fix: Remember that the gain is unrealised. Credit the revaluation surplus and show it in other comprehensive income.
Comparing fair value with cost instead of with carrying amount.
The depreciation already charged is overlooked or the revaluation date is mid-year.
Fix: Always deduct accumulated depreciation up to the revaluation date before you find the gain.
Keeping the old depreciation charge after revaluation.
Students stop after the journal and forget the next step.
Fix: Recalculate depreciation from the revalued amount over the remaining life, after any residual value.
Charging a revaluation loss entirely to profit or loss.
Students forget that an existing surplus on the same asset absorbs the loss first.
Fix: Check the surplus balance. Charge the loss to it first through OCI, then charge only the excess to profit or loss.
Depreciating land or showing the excess depreciation transfer in profit or loss.
Students apply one rule to every asset and confuse reserve movements with income statement items.
Fix: Land is not depreciated. The transfer to retained earnings goes through the statement of changes in equity and never touches profit or loss.
Revaluing only one asset in a class.
Students pick the asset that has risen in value.
Fix: IAS 16 requires the whole class to be revalued together. Only the classes are chosen, not individual assets.

Worked examples

Example 1

A company bought a building on 1 January 20X1 for $400,000. Its useful life is 20 years with no residual value, and it uses straight-line depreciation. On 31 December 20X3 the building is revalued to $450,000. The remaining life is unchanged. (a) Calculate the revaluation surplus. (b) Calculate the depreciation charge for 20X4. (c) Calculate the optional annual transfer from the revaluation surplus to retained earnings.

Show the solution

Annual depreciation on cost: $400,000 ÷ 20 = $20,000.
Accumulated depreciation at 31 December 20X3 (3 years): 3 × $20,000 = $60,000.
Carrying amount: $400,000 − $60,000 = $340,000.
Revaluation surplus: $450,000 − $340,000 = $110,000.
Remaining life: 20 − 3 = 17 years.
Depreciation for 20X4: $450,000 ÷ 17 = $26,470.59, which is $26,471 to the nearest dollar.
Depreciation on original cost basis would be $20,000.
Excess depreciation: $26,471 − $20,000 = $6,471 (using unrounded figures $6,470.59).

Answer: (a) Revaluation surplus: $110,000. (b) 20X4 depreciation: $26,471. (c) Annual transfer from surplus to retained earnings: $6,471.

Example 2

At 1 January 20X5 an entity had land with a carrying amount of $200,000 that had previously been revalued upwards, leaving a revaluation surplus of $30,000 on this land. At 31 December 20X5 the land is valued at $155,000. Show the accounting treatment of the loss.

Show the solution

Loss: $200,000 − $155,000 = $45,000.
The land has a surplus balance of $30,000 from earlier revaluation.
Charge $30,000 against the revaluation surplus through other comprehensive income.
Charge the remaining $45,000 − $30,000 = $15,000 to profit or loss.
Journal: Dr Revaluation surplus $30,000; Dr Profit or loss $15,000; Cr Land $45,000.
Land is not depreciated, so there is no change to a depreciation charge.
Closing land balance: $200,000 − $45,000 = $155,000. The revaluation surplus on this land is now nil.

Answer: The loss of $45,000 is split into $30,000 charged to the revaluation surplus (OCI) and $15,000 charged to profit or loss. Land is carried at $155,000.

Exam tips

Do the carrying amount working first. Most wrong answers come from using cost instead of the depreciated figure.
In multiple response questions, check each option against two rules: gains go to OCI and surplus, and losses go to profit or loss unless a surplus exists.
For number entry, watch the unit and the rounding instruction. Keep unrounded figures in your working until the last step.
In consolidation or accounts preparation questions, remember that the surplus is part of equity and the OCI figure goes into total comprehensive income.
Look for the date of the revaluation. If it falls part way through the year, split the year's depreciation before and after the date.

Practice questions from Tangible non-current assets

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

Where does the revaluation surplus appear in the financial statements?

It appears in other comprehensive income for the year and as a separate component of equity in the statement of financial position. It is not part of profit for the year. It also appears in the statement of changes in equity.

Do I have to revalue every asset?

No. You choose the cost or revaluation model for each class of property, plant and equipment. If you choose revaluation, you must revalue the whole class at the same time, not individual assets.

What happens to the revaluation surplus when the asset is sold?

The surplus is no longer needed for that asset. It is transferred directly to retained earnings and is not recycled through profit or loss. The gain or loss on disposal is calculated against the carrying amount at the date of sale.

Does revaluation change depreciation?

Yes. Depreciation is calculated on the revalued carrying amount over the remaining useful life, less any residual value. An upward revaluation usually increases the annual charge.