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Financial Reporting · Tangible non-current assets

Revaluation of Non-Current Assets under IAS 16 for ACCA FR

Updated 11 October 2026 · Fact-checked

Under the IAS 16 revaluation model you carry an asset at fair value less later depreciation. A revaluation gain goes to other comprehensive income and the revaluation surplus. A loss first reduces any surplus on that asset, then hits profit or loss. Depreciate the new carrying amount over the remaining life.

Understand Revaluation of Non-Current Assets

IAS 16 lets you choose between the cost model and the revaluation model for each class of property, plant and equipment. Under the cost model you carry cost less depreciation and impairment. Under the revaluation model you carry fair value at the revaluation date, less later depreciation and impairment.

If you revalue one asset, you must revalue the whole class it belongs to. A class is a group of similar assets, such as land and buildings or plant. Revaluations must be kept up to date so the carrying amount does not differ materially from fair value at the reporting date. Land and buildings are the usual exam case.

A gain over carrying amount is not profit. It is credited to other comprehensive income and accumulated in equity as the revaluation surplus. A loss is treated differently. It is first charged to OCI, reducing the surplus held for that same asset. Any excess over that surplus is charged to profit or loss. The reverse also applies. If an asset was previously written down through profit or loss, a later gain is recognised in profit or loss up to the amount of the earlier loss. Any excess goes to the surplus.

After a revaluation you depreciate the new carrying amount over the remaining useful life. Depreciation rises after an upward revaluation. The surplus is not a realised profit, but it becomes realised as the asset is used. IAS 16 permits you to transfer the excess depreciation each year from the revaluation surplus to retained earnings. This is a movement within equity, shown in the statement of changes in equity. It does not go through profit or loss. If you sell the asset, any remaining surplus can also be transferred to retained earnings, not recycled to profit or loss.

Key rules to remember

Revaluation gain or loss
Fair value − carrying amount at revaluation date
Positive is a gain (OCI and surplus). Negative is a loss. Always bring depreciation up to the revaluation date first.
Gain entry
Dr Asset, Cr Revaluation surplus (OCI)
If a previous loss on the same asset went through profit or loss, credit profit or loss first up to that amount.
Loss entry
Dr Revaluation surplus (up to the balance for that asset), Dr Profit or loss (excess), Cr Asset
Apply the surplus asset by asset, not across the class.
Depreciation after revaluation
Revalued carrying amount ÷ remaining useful life
Use the revised residual value and life if given. Land is not depreciated.
Excess depreciation transfer
Depreciation on revalued amount − depreciation on original cost
Dr Revaluation surplus, Cr Retained earnings. Permitted by IAS 16; exam questions usually tell you to make it.
Equivalent transfer calculation
Surplus at revaluation ÷ remaining useful life
Gives the same annual transfer when the life and residual value are unchanged by the revaluation.

How to solve Revaluation of Non-Current Assets questions

Use this order for any revaluation question. It keeps the entries and the depreciation in the right sequence.

  1. 1Calculate depreciation on the old basis up to the revaluation date and find the carrying amount at that date.
  2. 2Compare fair value with that carrying amount to find the gain or loss.
  3. 3If it is a gain, credit the revaluation surplus through OCI. First reverse any earlier loss on the same asset through profit or loss.
  4. 4If it is a loss, debit the existing surplus for that asset first, then profit or loss for any balance.
  5. 5Restate the asset at fair value and set the remaining useful life from the revaluation date.
  6. 6Calculate depreciation on the revalued amount for the rest of the year and charge it to profit or loss.
  7. 7If asked, calculate the excess depreciation and transfer it from the revaluation surplus to retained earnings.
  8. 8Check the closing figures: asset at fair value less depreciation, and surplus at its opening balance less the transfer.

Quickest way: Surplus-first shortcut

When to use it: Use it in Section A and OT case questions where you need one number, such as the closing surplus or the depreciation charge.

  1. Work out carrying amount at the revaluation date, then subtract it from fair value.
  2. Gain: surplus up by that amount. Loss: reduce surplus first, then profit or loss.
  3. New annual depreciation = fair value ÷ remaining life (less residual value if given).
  4. Annual transfer = surplus ÷ remaining life, if the revaluation does not change the life.
  5. Closing surplus = surplus at revaluation − transfers made since.

Common mistakes in Revaluation of Non-Current Assets

  • Taking a revaluation gain to profit or loss.

    Students treat any gain as income.

    Fix: A gain goes to OCI and the revaluation surplus, except to the extent it reverses an earlier loss on the same asset that was charged to profit or loss.

  • Comparing fair value with original cost instead of carrying amount.

    Depreciation to the revaluation date is forgotten.

    Fix: Always depreciate to the revaluation date first, then compare fair value with the carrying amount.

  • Charging a revaluation loss entirely to profit or loss.

    Students forget that a surplus may already exist on that asset.

    Fix: Debit the surplus for that asset first. Only the excess goes to profit or loss.

  • Putting the excess depreciation transfer through profit or loss.

    It looks like a depreciation adjustment.

    Fix: It is a reserve movement only. Dr Revaluation surplus, Cr Retained earnings. Profit or loss is charged with total depreciation on the revalued amount.

  • Depreciating land, or using the old remaining life.

    Buildings and land are valued together, and the life is not reset.

    Fix: Split land from buildings. Depreciate only the building, over the remaining life at the revaluation date.

  • Revaluing a single asset while leaving others of the same class at cost.

    Students see one valuation in the question and stop there.

    Fix: State that the whole class must be revalued. Revalue all assets in the class or none.

Worked examples

Example 1

Mawar Co buys a building on 1 January 20X1 for $500,000 with a 25-year life and no residual value. Land is ignored. On 1 January 20X4 it is revalued to $570,000 with the remaining life unchanged. Mawar uses the revaluation model and its year end is 31 December. Show the revaluation entry, the depreciation charge for 20X4, the excess depreciation transfer and the closing balances at 31 December 20X4.

Show the solution
  1. Annual depreciation on cost = $500,000 ÷ 25 = $20,000.
  2. Carrying amount at 1 January 20X4 after 3 years = $500,000 − $60,000 = $440,000.
  3. Revaluation gain = $570,000 − $440,000 = $130,000. Dr Building $130,000, Cr Revaluation surplus (OCI) $130,000.
  4. Remaining life = 25 − 3 = 22 years.
  5. Depreciation for 20X4 = $570,000 ÷ 22 = $25,909 (rounded).
  6. Depreciation on original cost = $20,000, so excess depreciation = $25,909 − $20,000 = $5,909. Check: $130,000 ÷ 22 = $5,909.
  7. Transfer: Dr Revaluation surplus $5,909, Cr Retained earnings $5,909.
  8. Closing carrying amount = $570,000 − $25,909 = $544,091. Closing surplus = $130,000 − $5,909 = $124,091.

Answer: Gain $130,000 to the revaluation surplus; 20X4 depreciation $25,909; transfer $5,909 to retained earnings; closing building $544,091 and surplus $124,091.

Example 2

Delta Co has a freehold property carried at $400,000 on 1 January 20X5. It holds a revaluation surplus of $50,000 relating to this property. At 31 December 20X5, after depreciation for the year has been charged, the carrying amount is $380,000. Ignoring the depreciation transfer, show the entries if the property is revalued to $310,000 at that date. Then show the entries if instead the revaluation was to $330,000 and the surplus balance was $18,000 at that date.

Show the solution
  1. First case: loss = $380,000 − $310,000 = $70,000.
  2. The surplus held for this property is $50,000, so debit the revaluation surplus $50,000.
  3. The excess loss = $70,000 − $50,000 = $20,000 is debited to profit or loss.
  4. Entry: Dr Revaluation surplus $50,000, Dr Profit or loss $20,000, Cr Property $70,000. The surplus becomes nil.
  5. Second case: loss = $380,000 − $330,000 = $50,000.
  6. The surplus is only $18,000, so debit surplus $18,000 and the other $32,000 to profit or loss.
  7. Entry: Dr Revaluation surplus $18,000, Dr Profit or loss $32,000, Cr Property $50,000.

Answer: First case: $50,000 against surplus and $20,000 to profit or loss. Second case: $18,000 against surplus and $32,000 to profit or loss.

Exam tips

  • In OT questions read what is being asked: surplus balance, depreciation charge, or profit or loss effect. Each needs a different stopping point in the method.
  • Always calculate carrying amount at the revaluation date before you compare it with fair value. This is where most marks are lost.
  • In Section C, show each entry with Dr and Cr and a label. Show the depreciation working separately so you earn method marks even if a number slips.
  • Write the transfer to retained earnings as a movement within equity, and show it in the statement of changes in equity as well as the notes.
  • Check whether land is included in a combined valuation. If so, split it out before you depreciate.

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

Is the revaluation surplus part of profit?

No. A gain on revaluation is recognised in other comprehensive income and held in equity as the revaluation surplus. It affects profit only when it reverses an earlier loss on the same asset that was charged to profit or loss.

Must I transfer excess depreciation to retained earnings?

IAS 16 permits the transfer rather than requiring it. In ACCA questions you are normally told to make it, or it is clearly expected. It is a movement between reserves and does not pass through profit or loss.

How often must assets be revalued?

Often enough that the carrying amount does not differ materially from fair value at the reporting date. If values move a lot, you may need an annual valuation. If they move little, a revaluation every three to five years may be enough.

What happens to the surplus when the asset is sold?

The remaining surplus can be transferred directly to retained earnings. It is not recycled through profit or loss. The gain or loss on disposal is calculated against the carrying amount.