Question

International Financial Reporting Standards (IFRS) does not use historical cost. As we discussed in Chapter 6, historical cost is the original monetary value of an item. For an example, if land was originally purchased one hundred years ago for $50,000, then that land would still be on the books for $50,000. Most importantly this cost is concrete and documented. Instead, IFRS revalues items at their current market value and the capital assets are marked up or down.

1. What is the impact on the Income Statement and Balance Sheet from the IFRS revaluation method?

Answer 1

Impact of revalutaion as per IFRS has following impact on Income Statement and Balance Sheet:

Case 1 : Where the carrying value of asset increases (Upward revaluation)

Recognize the increase in other comprehensive income and accumulate it in Reserves and Surplus under account head name “revaluation surplus.”

Revaluation Reserves Account Dr…

                To Other Comprehensive Income Cr….

However, if the increase in the value of fixed asset actually reverses revaluation loss for the same asset that had been previously recognized in profit or loss, recognize the revaluation gain in profit or loss to the extent of the previous loss.

Case 2 : Where the carrying value of asset decreases.(Downward revaluation)

Recognize the decrease in Income Statement. However, if there is a credit balance in the revaluation surplus for that asset, recognize the decrease in other comprehensive income to offset the credit balance. The decrease recognized in other comprehensive income decreases the amount of any revaluation surplus already recorded in Reserves & Surplus.

If a fixed asset is derecognized, transfer any associated revaluation surplus to retained earnings

Hope answer will be clear.

Thanks .