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Corporate Financial Reporting · Intangible Assets (Ind AS 38)

Ind AS 38 Cost Model and Revaluation Model Explained

Updated 11 October 2026 · Fact-checked

After recognition, Ind AS 38 lets you carry an intangible asset at cost less amortisation and impairment (cost model), or at fair value less later amortisation and impairment (revaluation model). Revaluation needs an active market. A gain goes to revaluation surplus in OCI; a loss hits profit or loss first, unless a surplus exists for that asset.

Understand Subsequent Measurement: Cost and Revaluation Models

Once an intangible asset is recognised, you must choose how to carry it in later years. This choice is an accounting policy. You pick either the cost model or the revaluation model.

Under the cost model, the asset stays at cost less accumulated amortisation and accumulated impairment losses. Nothing else changes the carrying amount.

Under the revaluation model, the asset is carried at its fair value at the date of revaluation, less any later accumulated amortisation and impairment losses. The key condition: fair value must be measured by reference to an active market. Revaluations must be frequent enough that the carrying amount at the end of the reporting period does not differ materially from fair value.

Active markets for intangibles are uncommon. The standard says one may exist for freely transferable taxi licences, fishing licences or production quotas. It cannot exist for brands, newspaper mastheads, music and film publishing rights, patents or trademarks, because each is unique. So in exam problems, if the question does not give an active market price, the revaluation model is usually not available.

If you revalue one asset, you revalue every asset in its class under the same model, unless there is no active market for some of them. Those assets stay at cost less amortisation and impairment.

Key rules to remember

Cost model carrying amount
Cost − accumulated amortisation − accumulated impairment losses
Applies when the entity chooses the cost model, or to an asset in a revalued class that has no active market.
Revaluation model carrying amount
Fair value at revaluation date (active market) − later accumulated amortisation − later accumulated impairment losses
Revalue often enough that the carrying amount is not materially different from fair value at the reporting date.
Revaluation increase
Credit OCI (revaluation surplus), unless it reverses an earlier decrease of the same asset recognised in profit or loss
To the extent it reverses an earlier loss in profit or loss, the increase is recognised in profit or loss.
Revaluation decrease
Debit profit or loss, except to the extent of any credit balance in revaluation surplus for that asset, which is debited first (OCI)
The surplus is tracked asset by asset.
Surplus realised through use
Amortisation on revalued amount − amortisation on historical cost
May be transferred to retained earnings, not through profit or loss. The whole surplus may be transferred on retirement or disposal.
Class rule
One class = one model, unless no active market for an asset
Such an asset is carried at cost less amortisation and impairment.

How to solve Subsequent Measurement: Cost and Revaluation Models questions

Use this order for any question on subsequent measurement of an intangible asset.

  1. 1Check the policy: cost model or revaluation model. If cost model, carry at cost less amortisation and impairment and stop.
  2. 2If revaluation is claimed, test for an active market. Brands, patents, trademarks and similar unique assets fail this test.
  3. 3Check the class. Other assets in the same class must follow the same model unless they have no active market.
  4. 4Compute the carrying amount just before revaluation: cost or last revalued amount less amortisation to date.
  5. 5Compare with fair value. Difference above carrying amount is an increase; below is a decrease.
  6. 6Post the increase to revaluation surplus in OCI, except to reverse an earlier loss of the same asset in profit or loss. Post a decrease to the surplus first, then to profit or loss.
  7. 7Amortise the new carrying amount over the remaining useful life from the revaluation date.
  8. 8If asked, show the transfer of realised surplus to retained earnings (not through profit or loss) and the disclosures.

Quickest way: Three-check shortcut

When to use it: Use when time is short in a numerical or MCQ on revaluation.

  1. Active market? If no, cost model only. Answer ends there.
  2. Carrying amount vs fair value: write the gain or loss as one number.
  3. Use the asset's history: any past surplus or past loss for this same asset decides the split between OCI and profit or loss.

Common mistakes in Subsequent Measurement: Cost and Revaluation Models

  • Revaluing a patent or brand using a valuer's estimate.

    Students treat any fair value as enough.

    Fix: Fair value must come from an active market. The standard says an active market cannot exist for brands, patents, trademarks and similar unique assets.

  • Revaluing only one asset in a class.

    Students think revaluation is asset by asset.

    Fix: Revalue the whole class, unless an asset has no active market. Such an asset stays at cost less amortisation and impairment.

  • Taking a revaluation decrease straight to profit or loss.

    Students forget that surplus can absorb the decrease.

    Fix: Debit the revaluation surplus of that asset first, up to its credit balance. Only the excess goes to profit or loss.

  • Routing the transfer of surplus to retained earnings through profit or loss.

    Confusion with gains on disposal.

    Fix: The transfer is made directly within equity, not through profit or loss.

  • Amortising the revalued asset on the old carrying amount.

    Students keep the original schedule.

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

  • Ignoring the loss of an active market.

    Students keep revaluing at old values.

    Fix: The carrying amount becomes the last revalued amount less later amortisation and impairment. The loss of the market may signal impairment, so test under Ind AS 36.

Worked examples

Example 1

On 1 April 2024, Kaveri Ltd bought a freely transferable fishing licence for ₹10,00,000 with a 10-year useful life and nil residual value. An active market exists, and the company uses the revaluation model. On 31 March 2026 the fair value is ₹10,40,000. Show the carrying amount before revaluation, the revaluation surplus, and the amortisation for 2026-27 (straight-line over the remaining life). Assume no earlier revaluation.

Show the solution
  1. Annual amortisation on cost = ₹10,00,000 ÷ 10 = ₹1,00,000.
  2. Accumulated amortisation to 31 March 2026 (2 years) = ₹2,00,000.
  3. Carrying amount before revaluation = ₹10,00,000 − ₹2,00,000 = ₹8,00,000.
  4. Fair value ₹10,40,000 − ₹8,00,000 = ₹2,40,000 increase.
  5. No earlier loss in profit or loss, so credit the whole ₹2,40,000 to revaluation surplus through OCI.
  6. Remaining life = 8 years. Amortisation for 2026-27 = ₹10,40,000 ÷ 8 = ₹1,30,000.

Answer: Carrying amount before revaluation ₹8,00,000; revaluation surplus ₹2,40,000 (OCI); amortisation for 2026-27 ₹1,30,000.

Example 2

Continuing the previous question, on 31 March 2027 the fair value of the licence is ₹8,50,000. Calculate the revaluation decrease and show how it is recognised. Also compute the surplus realised through amortisation in 2026-27 that may be transferred to retained earnings.

Show the solution
  1. Carrying amount at 31 March 2027 = ₹10,40,000 − ₹1,30,000 = ₹9,10,000.
  2. Fair value ₹8,50,000, so decrease = ₹9,10,000 − ₹8,50,000 = ₹60,000.
  3. Surplus before this revaluation: the ₹2,40,000 created earlier. Realised through use in 2026-27 is ₹1,30,000 − ₹1,00,000 = ₹30,000 (amortisation on revalued amount less amortisation on historical cost). If this is transferred, the surplus becomes ₹2,10,000, but the transfer is optional. Treat the decrease against the untransferred balance.
  4. The surplus balance (₹2,40,000 if no transfer is made, or ₹2,10,000 if transferred) exceeds the ₹60,000 decrease, so the whole decrease is debited to revaluation surplus through OCI.
  5. Nothing is charged to profit or loss for the decrease.
  6. Surplus after the decrease: ₹2,40,000 − ₹60,000 = ₹1,80,000 (or ₹2,10,000 − ₹60,000 = ₹1,50,000 if the ₹30,000 was transferred first). The transfer to retained earnings is not made through profit or loss.

Answer: Revaluation decrease ₹60,000, fully debited to revaluation surplus (OCI), nothing to profit or loss. Surplus realised through use in 2026-27: ₹30,000, transferable to retained earnings directly.

Exam tips

  • Always check the active market first. Many questions are built so that the revaluation model is not allowed, for example for a patent or brand.
  • Track surplus and earlier losses asset by asset. The split between OCI and profit or loss is where marks are won.
  • Write the amortisation on the revalued amount over the remaining life, and show the date from which you apply it.
  • In MCQs, watch for the class rule and the treatment of an asset with no active market within a revalued class.
  • For disclosure questions, remember the effective date of revaluation, the revalued carrying amount, the cost-model carrying amount, and the surplus movement with any distribution restrictions.

Practice questions from Intangible Assets (Ind AS 38)

Subsequent Measurement: 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.

Subsequent Measurement: Cost and Revaluation Models: frequently asked questions

Can I revalue a patent or trademark under Ind AS 38?

No, not by reference to an active market. The standard says an active market cannot exist for brands, patents, trademarks and similar assets because each is unique. Such assets stay on the cost model.

Where does a revaluation surplus go?

It is recognised in other comprehensive income and accumulated in equity as revaluation surplus. If the increase reverses an earlier decrease of the same asset recognised in profit or loss, that part goes to profit or loss.

What happens if the active market disappears?

The carrying amount becomes the last revalued amount less later accumulated amortisation and impairment losses. The loss of the market may indicate impairment, so you test the asset under Ind AS 36.

Is the surplus transfer to retained earnings routed through profit or loss?

No. The cumulative surplus may be transferred directly to retained earnings when realised. This happens fully on retirement or disposal, or partly as the asset is used.