Subsequent Measurement of PPE - Ind AS - Indian Accounting Standards - Companies Law

Subsequent Measurement of PPE An entity as a matter of choosing an accounting policy, it should select any one of the following TWO Models available after recognizing the PPE and follow the same consistently. Cost Model Revaluation Model Cost Model - After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses. i.e., - Cost XXX Less: Accumulated Depreciation (XX) Less: Accumulated Impairment Loss (XX) Net Carrying Amount XXX Revaluation Model - After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. PPE should be measured at - Fair Value of PPE XXX Less: SUBSEQUENT Accumulated Depreciation (XX) Less: SUBSEQUENT Accumulated Impairment Loss (XX) Net Carrying Amount XXX Frequency of Revaluation - The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity s operations. The following are examples of separate classes: land; land and buildings; machinery; ships; aircraft; motor vehicles; furniture and fixtures; office equipment; and bearer plants. When PPE are revalued for the FIRST TIME: If it is upward revaluation Revaluation gain should be recognized in Other Comprehensive Income (OCI) and accumulated reserve should be presented in Reserves and Surplus PPE A/c Dr. XXX To revaluation surplus A/c (OCI) XXX If it is downward revaluation Revaluation loss should be charged to P L A/c P L A/c Dr. XXX To PPE A/s XXX When PPEs are SUBSEQUENTLY revalued: The following treatment based on the first time revaluation (Upward/Downward) If First time upward revaluation Next time also upward revaluation Further increase should be recognized in Other Comprehensive Income (OCI) and accumulated equity should be presented under heading Reserves and Surplus . Next time downward revaluation Utilize the revaluation surplus to the extent available in balance sheet (Such decrease should be recognized in OCI) reduce the amount accumulated in equity under the heading Reserves and Surplus and the remaining balance should be charged to P L A/c. If first time is downward revaluation Next time also downward revaluation Further decrease should be transferred to P L A/c. Next tim upward revaluation Credit the P L A/c to the extent it was charged to P L in earlier revaluation and remaining balance should be credited to OCI and accumulated in equity under the heading Reserves and Surplus . Note- The effect of taxes on revaluation are recognized and disclosed as Ind AS 12 Income Taxes.