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CA Final · Financial Reporting · Ind AS 16 Property, Plant and Equipment

Rohan Steels Ltd. bought a machine for Rs 20,00,000 and uses the revaluation model. Class revaluation is done at year end. At 31 March 2025 the carrying amount was Rs 16,00,000 and fair value Rs 13,00,000 (first revaluation; the Rs 3,00,000 decrease is recognised in profit or loss as no prior surplus exists). At 31 March 2026, before revaluation, depreciation on the revalued figure over 5 remaining years brings carrying amount to Rs 10,40,000. Fair value at 31 March 2026 is Rs 14,00,000. How should the increase of Rs 3,60,000 be recognised?

Rs 3,00,000 is recognised in profit or loss, reversing the earlier revaluation decrease charged there, and the remaining Rs 60,000 is credited to other comprehensive income as revaluation surplus. An increase goes to profit or loss only to the extent it reverses a previous loss on the same asset.

  1. ARs 3,00,000 in profit or loss and Rs 60,000 in other comprehensive income (revaluation surplus)Correct
  2. BEntire Rs 3,60,000 in other comprehensive income
  3. CEntire Rs 3,60,000 in profit or loss
  4. DRs 60,000 in profit or loss and Rs 3,00,000 in other comprehensive income

Explanation

Increase = 14,00,000 - 10,40,000 = Rs 3,60,000. Ind AS 16 requires an increase to be recognised in profit or loss to the extent it reverses a revaluation decrease of the same asset previously recognised in profit or loss. Prior decrease taken to profit or loss was Rs 3,00,000, so that much goes to profit or loss. The remaining Rs 60,000 is credited to OCI as revaluation surplus. Option B ignores the reversal rule.

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