The revaluation model and revaluation surplus

The revaluation model lets a company show what its property is worth rather than what it cost, at the price of regular valuations and higher depreciation. This guide explains when it can be used, the journal entry on revaluation, depreciation afterwards, the surplus transfer, and how a later fall in value is handled.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

Under the IAS 16 revaluation model, a class of property, plant and equipment is carried at fair value at the revaluation date less later depreciation and impairment. An increase in value goes to other comprehensive income and builds a revaluation surplus in equity, unless it reverses an earlier decrease recognised in profit or loss. A decrease goes to profit or loss, unless it reverses an existing surplus. Revaluing a building with a carrying amount of CU 800,000 to CU 1,200,000 creates a revaluation surplus of CU 400,000.

At a glance

Carrying amount
Fair value at revaluation less later depreciation
Applies to
A whole class of assets
Increase
OCI, revaluation surplus
Decrease
Profit or loss, unless reversing a surplus
Frequency
Often enough to stay close to fair value
Excel
Depreciation and revaluation schedule
The revaluation model and revaluation surplusCarrying amount: Fair value at revaluation less later depreciation; Applies to: A whole class of assets; Increase: OCI, revaluation surplus; Decrease: Profit or loss, unless reversing a surplus; Frequency: Often enough to stay close to fair value; Excel: Depreciation and revaluation schedule.KEY FACTS AT A GLANCEThe revaluation model and revaluation surplusCarrying amountFair value at revaluationless later depreciationApplies toA whole class of assetsIncreaseOCI, revaluation surplusDecreaseProfit or loss, unlessreversing a surplusFrequencyOften enough to stayclose to fair valueExcelDepreciation andrevaluation scheduleChecked against official sourcesTax BakersThe revaluation model and revaluation surplusCarrying amount: Fair value at revaluation less later depreciation; Applies to: A whole class of assets; Increase: OCI, revaluation surplus; Decrease: Profit or loss, unless reversing a surplus; Frequency: Often enough to stay close to fair value; Excel: Depreciation and revaluation schedule.KEY FACTS AT A GLANCEThe revaluation model andrevaluation surplusCarrying amountFair value at revaluation less laterdepreciationApplies toA whole class of assetsIncreaseOCI, revaluation surplusDecreaseProfit or loss, unless reversing a surplusFrequencyOften enough to stay close to fair valueExcelDepreciation and revaluation scheduleChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

When can the revaluation model be used?

For a whole class of property, plant and equipment, such as land and buildings, when fair value can be measured reliably. All items in the class are revalued together, to avoid selective revaluation. Revaluations must be regular enough that the carrying amount does not differ materially from fair value: every three to five years for stable assets, annually for volatile ones. Fair value is measured under IFRS 13, usually by a qualified valuer.

A worked example: revaluing an office building

A company bought an office building for CU 1,000,000 with a 25-year life. After 5 years, accumulated depreciation is CU 200,000 and the carrying amount CU 800,000. A valuer puts its fair value at CU 1,200,000.

Revaluation journal entries (elimination method, CU)Revaluation journal entries (elimination method, CU)Eliminate accumulated depreciationDebitCreditDr Accumulated depreciation200,000.00Cr Building200,000.00Write up to fair valueDebitCreditDr Building400,000.00Cr Revaluation surplus (OCI)400,000.00
The building goes from CU 800,000 to its fair value of CU 1,200,000.

Under the elimination method shown, accumulated depreciation is set against cost, and the asset is then written up to fair value. IAS 16 also allows the gross method, which restates cost and accumulated depreciation proportionately.

What happens after the revaluation?

CU a year
Depreciation on the revalued amount: 1,200,000 over the remaining 20 years60,000
Depreciation that would have been charged on cost40,000
Excess depreciation: optional transfer from revaluation surplus to retained earnings20,000

The transfer is made directly within equity, not through profit or loss, and is optional. After 20 years, the whole surplus has been transferred. If the building is sold, any remaining surplus may be transferred to retained earnings; it is never recycled to profit.

What if the value falls later?

Three years later, the carrying amount is CU 1,020,000 and the revaluation surplus, after three transfers, CU 340,000. A new valuation gives CU 900,000. The decrease of CU 120,000 is debited to the revaluation surplus in OCI, because the surplus is large enough. Only a decrease beyond the balance of the surplus for that asset would go to profit or loss.

Revaluation or cost model: which do companies choose?

Most choose the cost model, because the revaluation model needs regular valuations, lowers profit through higher depreciation and does not pass gains through profit. It is more common for land and buildings, especially in property-heavy groups and in countries where revaluation was traditional.

What about deferred tax?

If tax is based on original cost, the revaluation creates a taxable temporary difference of CU 400,000. At 25%, a deferred tax liability of CU 100,000 is recognised in OCI, so the net surplus in equity is CU 300,000. See deferred tax with examples.

What must be disclosed?

The effective date of the revaluation, whether an independent valuer was involved, the fair value measurement disclosures of IFRS 13, the carrying amount that would have been recognised under the cost model for each revalued class, and the revaluation surplus and its movements. The revaluation sheet of the Depreciation and revaluation schedule (Excel) calculates the surplus, new depreciation and transfer. US GAAP does not allow revaluation; see IAS 16 vs US GAAP.

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Questions people ask

What is the revaluation model under IAS 16?

An option to carry a class of PPE at fair value at the revaluation date less later depreciation and impairment, instead of cost.

Where does a revaluation surplus go?

To other comprehensive income and a revaluation surplus in equity, unless it reverses a previous decrease recognised in profit or loss.

What is the journal entry for a revaluation?

Under the elimination method: Dr Accumulated depreciation, Cr Asset; then Dr Asset, Cr Revaluation surplus for the increase.

Is the revaluation surplus recycled to profit or loss?

No. It may be transferred directly to retained earnings as the asset is used or on disposal.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 16 Property, Plant and Equipment

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IAS 16IAS 16 property, plant and equipment explainedIFRS vs US GAAPIAS 16 vs US GAAP: revaluation of property, plant and equipmentIAS 12Deferred tax liabilities and assets with examples

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This guide is general information. It is not tax or legal advice for your situation.