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Financial Reporting · Ind AS 16 Property, Plant and Equipment

Ind AS 16: Cost Model and Revaluation Model (Measurement after Recognition)

Updated 5 October 2026 · Fact-checked

After recognition, Ind AS 16 lets you measure each class of PPE at cost less accumulated depreciation and impairment (cost model) or at fair value less later depreciation and impairment (revaluation model). To solve questions, fix the class, revalue the whole class, credit increases to revaluation surplus in OCI, and take decreases first against surplus, then to profit or loss.

Understand Measurement after Recognition: Cost and Revaluation Models

Once an item of PPE is recognised, you must pick an accounting policy for measuring it afterwards. Ind AS 16 gives two choices: the cost model and the revaluation model. You apply the chosen model to an entire class of PPE, not to single items.

Under the cost model, the asset is carried at cost less accumulated depreciation and accumulated impairment losses. Market value changes are ignored.

Under the revaluation model, an asset whose fair value can be measured reliably is carried at its revalued amount. This is its fair value at the date of revaluation less any later accumulated depreciation and later accumulated impairment losses. Fair value is measured under Ind AS 113. Revaluations must be made often enough that the carrying amount does not differ materially from fair value at the end of the reporting period. Items with volatile fair values may need yearly revaluation. Items with insignificant changes may need revaluation only every three or five years.

A class is a group of assets of similar nature and use, such as land, buildings, machinery, ships, aircraft, motor vehicles, furniture and fixtures, or office equipment. If you revalue one item, you must revalue the whole class at the same time. Revaluing the class on a rolling basis is allowed only if it finishes within a short period and the revaluations are kept up to date.

The accounting depends on the direction. An increase is credited to other comprehensive income and accumulated in equity as revaluation surplus. It is recognised in profit or loss only to the extent it reverses a decrease of the same asset previously recognised in profit or loss. A decrease is recognised in profit or loss. But if the asset has a credit balance in revaluation surplus, the decrease is charged to OCI to the extent of that balance. Surplus and deficit are tracked asset by asset, not for the class as a whole. The surplus may be transferred directly to retained earnings when the asset is derecognised, or as the asset is used (the difference between depreciation on revalued carrying amount and on original cost). The transfer does not go through profit or loss.

Key rules to remember

Cost model carrying amount
Carrying amount = Cost − Accumulated depreciation − Accumulated impairment losses
Fair value changes are ignored.
Revaluation model carrying amount
Carrying amount = Fair value at revaluation date − Later accumulated depreciation − Later accumulated impairment losses
Used only if fair value can be measured reliably.
Revaluation increase or decrease
Revaluation gain or loss = Fair value − Carrying amount just before revaluation
Positive means increase, negative means decrease. Compute asset by asset.
Increase rule
Increase → OCI (revaluation surplus); but credit P&L to the extent it reverses an earlier P&L decrease on the same asset
Do not set off against decreases on other assets.
Decrease rule
Decrease → first debit revaluation surplus of that asset (OCI); excess → P&L
Surplus of other assets cannot be used.
Accumulated depreciation treatment (restatement)
Either (a) restate gross carrying amount and accumulated depreciation proportionately, or (b) eliminate accumulated depreciation against gross carrying amount
Net carrying amount must equal revalued amount in both methods.
Annual transfer from surplus
Transfer = Depreciation on revalued carrying amount − Depreciation on original cost
Optional. Moves from revaluation surplus to retained earnings, not through P&L.

How to solve Measurement after Recognition: Cost and Revaluation Models questions

Use this order for any question on the cost or revaluation model.

  1. 1Identify the class of PPE and the policy adopted. Check that the policy applies to the whole class.
  2. 2Compute the carrying amount of each asset just before revaluation: cost less depreciation up to that date, and less impairment if any.
  3. 3Compare fair value with that carrying amount, asset by asset, to get an increase or decrease.
  4. 4Check the history of that asset: any earlier decrease taken to P&L, or any existing revaluation surplus.
  5. 5Apply the rule: increase to OCI (surplus) except reversal of an earlier P&L loss; decrease against surplus first and then to P&L.
  6. 6Pass the entry, and restate cost and accumulated depreciation if asked, so that net carrying amount equals fair value.
  7. 7Recompute depreciation on the revalued amount over the remaining useful life, and compute any transfer from surplus to retained earnings if the question asks for it.

Quickest way: Four-line revaluation check

When to use it: Use it in MCQs and short written answers where time is tight.

  1. Write: carrying amount before revaluation, fair value, difference.
  2. Tag the difference as gain or loss and look up that asset's earlier balance in surplus or earlier P&L loss.
  3. Split the difference: the part reversing an old P&L loss goes to P&L, the rest of a gain goes to OCI; a loss is charged first to surplus, then to P&L.
  4. New depreciation = fair value ÷ remaining life (after residual value, if given).

Common mistakes in Measurement after Recognition: Cost and Revaluation Models

  • Revaluing only one asset in a class and leaving the others at cost.

    Students see that only one item has a market price change.

    Fix: State that the policy applies to the whole class. Revalue all items in that class at the same time, or on a rolling basis completed in a short period.

  • Netting gains on one asset against losses on another.

    It feels natural to compute a net class gain.

    Fix: Track every asset separately. A surplus on Building A cannot absorb a deficit on Building B.

  • Taking a revaluation increase straight to profit or loss.

    Students mix it up with the fair value model for investment property.

    Fix: Under Ind AS 16 an increase goes to OCI as revaluation surplus, unless it reverses an earlier P&L decrease on the same asset.

  • Charging a decrease wholly to P&L even when a surplus exists for that asset.

    Students forget the earlier revaluation history.

    Fix: Debit the asset's revaluation surplus first. Only the excess goes to P&L.

  • Depreciating on the old cost after revaluation.

    The depreciation schedule is carried forward without change.

    Fix: Depreciate the revalued carrying amount over the remaining useful life from the revaluation date.

  • Routing the annual surplus transfer or the transfer on disposal through P&L.

    Students think the surplus is recycled like some OCI items.

    Fix: Revaluation surplus is never reclassified to P&L. Transfer it directly to retained earnings.

Worked examples

Example 1

Alpha Ltd (Ind AS company) adopts the revaluation model for its buildings class. A building was bought on 1 April 2024 for ₹80,00,000, with a useful life of 20 years, nil residual value, straight-line. On 31 March 2026 its fair value is ₹90,00,000. Show the revaluation entry and the depreciation for 2026-27. Also show the treatment if the cost model were used.

Show the solution
  1. Annual depreciation on cost = ₹80,00,000 ÷ 20 = ₹4,00,000.
  2. Accumulated depreciation at 31 March 2026 (2 years) = ₹8,00,000. Carrying amount = ₹72,00,000.
  3. Fair value ₹90,00,000 − carrying amount ₹72,00,000 = increase of ₹18,00,000.
  4. No earlier P&L decrease exists, so the entire increase goes to OCI.
  5. Entry (eliminate method): Dr Accumulated depreciation ₹8,00,000; Dr Building ₹10,00,000; Cr Revaluation surplus (OCI) ₹18,00,000. Building is then ₹90,00,000 gross, nil accumulated depreciation.
  6. Remaining life = 18 years. Depreciation for 2026-27 = ₹90,00,000 ÷ 18 = ₹5,00,000.
  7. Under the cost model: no entry, depreciation stays ₹4,00,000 and the carrying amount at 31 March 2027 would be ₹68,00,000.

Answer: Revaluation surplus of ₹18,00,000 is credited to OCI. Depreciation for 2026-27 is ₹5,00,000 on the revalued amount. Under the cost model there is no entry and depreciation remains ₹4,00,000.

Example 2

Beta Ltd uses the revaluation model for land. Land X was bought at ₹50,00,000 in 2023-24. At 31 March 2025 its fair value was ₹40,00,000. At 31 March 2026 its fair value was ₹58,00,000. At 31 March 2027 its fair value was ₹52,00,000. Land is not depreciated. Show the treatment each year.

Show the solution
  1. 31 March 2025: carrying amount ₹50,00,000, fair value ₹40,00,000. Decrease ₹10,00,000. No surplus exists, so the whole ₹10,00,000 is charged to P&L. Land is now ₹40,00,000.
  2. 31 March 2026: carrying amount ₹40,00,000, fair value ₹58,00,000. Increase ₹18,00,000.
  3. Of this, ₹10,00,000 reverses the earlier P&L loss, so it is credited to P&L.
  4. The remaining ₹8,00,000 is credited to OCI as revaluation surplus. Land is now ₹58,00,000.
  5. 31 March 2027: carrying amount ₹58,00,000, fair value ₹52,00,000. Decrease ₹6,00,000.
  6. Surplus balance for this land is ₹8,00,000, which covers the decrease. Debit ₹6,00,000 to OCI (revaluation surplus). Nothing goes to P&L. Surplus balance becomes ₹2,00,000. Land is ₹52,00,000.

Answer: 2024-25: loss ₹10,00,000 in P&L. 2025-26: gain ₹10,00,000 in P&L and ₹8,00,000 in OCI. 2026-27: ₹6,00,000 debited to revaluation surplus (OCI), P&L unaffected. Closing surplus ₹2,00,000 and land at ₹52,00,000.

Exam tips

  • Always name the class and say the model applies to the whole class. Examiners award marks for this statement.
  • Show a one-line working of carrying amount before revaluation. Many marks are lost by skipping it.
  • In case scenarios, scan for earlier decreases or surplus on the same asset. That history decides the P&L versus OCI split.
  • Write that revaluation surplus is not reclassified to P&L, and state where transfers go (retained earnings).
  • For MCQs, check whether the question asks for the P&L effect, the OCI effect or the closing carrying amount before computing.

Practice questions from Ind AS 16 Property, Plant and Equipment

Measurement after Recognition: Cost and Revaluation Models in other exams

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

Measurement after Recognition: Cost and Revaluation Models: frequently asked questions

Can a company revalue only some assets within a class?

No. If you revalue an item, you must revalue the entire class of assets to which it belongs. A rolling revaluation is allowed only if it is completed in a short period and the values are kept up to date.

How often must PPE be revalued under Ind AS 16?

There is no fixed interval. Revalue often enough that the carrying amount does not differ materially from fair value at the end of the reporting period. Volatile assets may need annual revaluation, while stable ones may need it every few years.

Where does a revaluation surplus go in the financial statements?

It is recognised in other comprehensive income and accumulated in equity under revaluation surplus. It is not recognised in profit or loss, except to the extent it reverses an earlier loss on the same asset that was charged to profit or loss.

Can the revaluation surplus be transferred to retained earnings?

Yes. You may transfer it directly to retained earnings when the asset is derecognised, or gradually as the asset is used. The transfer is the difference between depreciation on the revalued amount and depreciation on original cost. It never passes through profit or loss.