Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Orrin Group changes its policy for a subsidiary's property from the cost model to the revaluation model under IAS 16 in 20X6, giving more relevant information. Which treatment is correct?

The first adoption of the revaluation model is not applied retrospectively under IAS 8. It is treated as a revaluation under IAS 16, so the surplus goes to other comprehensive income and revaluation surplus, with no restatement of comparatives.

  1. AApply IAS 8 retrospectively and restate comparatives for the change
  2. BApply the change prospectively as an IAS 16 revaluation, treating the first revaluation as a revaluation increase or decrease under IAS 16, not under IAS 8Correct
  3. CApply IAS 8 retrospectively but only to the group's opening retained earnings
  4. DProhibit the change because the subsidiary's policy must match the parent's historical policy

Explanation

IAS 8 explicitly excludes the initial adoption of a policy of revaluing assets under IAS 16 from retrospective application; the first revaluation is dealt with under IAS 16 (surplus to other comprehensive income/revaluation surplus). Hence retrospective restatement is wrong. The change is allowed, subject to group policy alignment on consolidation.

Did you get it right without looking?

One question tells you little. A timed set on Discussion of issues in financial reporting shows your real accuracy, how long you take and where you lose marks.

Practise Discussion of issues in financial reportingFree diagnostic mock

More Discussion of issues in financial reporting questions