Key Takeaways
- Once elected, the revaluation model applies to an entire class of assets, not to individual items cherry-picked by management.
- Revaluation surpluses go to other comprehensive income and accumulate in equity; decreases go to profit or loss unless they reverse a previous surplus.
- Valuations must be kept sufficiently current that carrying amount does not differ materially from fair value at the reporting date, with many entities revaluing land and buildings every three to five years.
- Switching from the cost model to the revaluation model is a voluntary change in accounting policy accounted for as a revaluation, not retrospectively under IAS 8.
What is Revaluation Model?
IAS 16.31 permits an entity to choose, as its accounting policy for an entire class of property, plant, and equipment, to carry those assets at a revalued amount. The revalued amount is fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. IAS 16.34 requires that revaluations are made with sufficient regularity to ensure the carrying amount does not differ materially from fair value at the reporting date. For volatile asset classes this can mean annual valuations; for stable property holdings a three-to-five-year cycle is common in practice.
When a revaluation increases carrying amount, the increase goes to other comprehensive income and accumulates in a revaluation surplus within equity (IAS 16.39). If the same asset was previously written down through profit or loss, the increase first reverses that loss before any surplus is recognised. A decrease goes directly to profit or loss unless a surplus exists for that asset, in which case it is debited against the surplus first (IAS 16.40). ISA 540.13(a) requires the auditor to evaluate whether the entity's valuation method is appropriate, which in practice means testing the external appraiser's competence, independence, and methodology before accepting the output.
Worked example: Dupont Ingenierie S.A.S.
Client: French engineering services company, FY2025, revenue EUR 92M, IFRS reporter. Dupont owns an office complex in Lyon acquired in 2018 for EUR 14M and classified within the "land and buildings" class of PP&E. Accumulated depreciation at 31 December 2025 is EUR 2.8M, producing a carrying amount under the cost model of EUR 11.2M. Management decides to adopt the revaluation model for the entire land and buildings class from FY2025.
Step 1 — Obtain an external valuation
Dupont engages an independent RICS-qualified valuer who estimates the fair value of the Lyon office complex at EUR 13.5M as at 31 December 2025, using a market comparison approach supported by four recent transactions for comparable office property in the Lyon metropolitan area.
Step 2 — Calculate the revaluation surplus
The carrying amount before revaluation is EUR 11.2M. Fair value is EUR 13.5M. The revaluation increase is EUR 2.3M. No previous impairment loss was recognised for this asset, so the full EUR 2.3M goes to other comprehensive income and accumulates in the revaluation surplus in equity (IAS 16.39).
Step 3 — Verify class-wide application
Dupont holds four other properties in the land and buildings class (a warehouse in Marseille, two satellite offices in Paris, and a production facility in Strasbourg). All four must also be revalued to fair value as at 31 December 2025 to satisfy IAS 16.36.
Step 4 — Determine the deferred tax effect
The revaluation surplus of EUR 2.3M creates a taxable temporary difference under IAS 12. At the French corporate tax rate of 25%, the deferred tax liability is EUR 575,000. This is debited against the revaluation surplus in OCI, reducing the net surplus in equity to EUR 1.725M.
The revaluation produces a net equity increase of EUR 1.725M for the Lyon complex alone, and the measurement is defensible because it rests on an independent RICS valuation supported by comparable market transactions, with the deferred tax consequence recognised in the same component of equity as the surplus.
Why it matters in practice
Teams frequently revalue individual "trophy" properties while leaving other assets in the same class at cost. IAS 16.36 prohibits selective revaluation within a class. If land and buildings is the elected class, every land and building asset must be revalued. Auditors who accept a partial revaluation expose themselves to an IAS 16.36 non-compliance finding.
The deferred tax consequence of a revaluation surplus is often either omitted entirely or recognised in profit or loss rather than in OCI. IAS 12.61A requires the deferred tax on a revaluation surplus to be charged directly to equity (OCI), matching the component in which the surplus itself is recognised. ISA 540.13(b) requires the auditor to evaluate whether the data and assumptions underlying the tax calculation are appropriate for the method used.
Revaluation model vs. cost model
| Dimension | Revaluation model (IAS 16.31) | Cost model (IAS 16.30) |
|---|---|---|
| Measurement basis | Fair value at revaluation date less subsequent depreciation and impairment | Historical cost less accumulated depreciation and impairment |
| Balance sheet effect | Assets and equity may be higher; reflects current market conditions | Assets reflect original transaction price; equity unaffected by market movements |
| Income statement volatility | Revaluation decreases (where no surplus exists) hit profit or loss; depreciation based on revalued amount is higher | No revaluation gains or losses; depreciation based on original cost |
| Audit effort | Requires testing the valuer's competence, independence, methodology, and the completeness of class-wide application | Lower effort; testing focuses on cost records, useful life, and residual value |
| Frequency of external input | Regular external valuations needed (typically every three to five years for stable property) | External input only when impairment indicators exist |
The choice matters on engagements because the revaluation model introduces fair value estimation into what is otherwise a mechanical cost-based measurement. Auditors who treat a revalued property balance the same way they treat a cost-model balance will miss the estimation uncertainty in the valuer's inputs and the risk that the class-wide application requirement has not been met.
Related terms
Frequently asked questions
Can I apply the revaluation model to intangible assets?
Only if an active market exists for the intangible asset. IAS 38.75 permits the revaluation model for intangible assets, but IAS 38.78 restricts it to assets for which fair value can be determined by reference to an active market. In practice, active markets exist for very few intangible asset classes (certain taxi licences, fishing quotas, production quotas), so the cost model applies to nearly all intangibles.
How often do I need to revalue assets under the revaluation model?
IAS 16.34 requires revaluations with sufficient regularity that carrying amount does not differ materially from fair value at the reporting date. For property in stable markets, a full external valuation every three to five years supplemented by an interim desktop review is common. Volatile asset classes (specialised machinery in cyclical industries) may need annual revaluation.
What happens to the revaluation surplus when I dispose of the asset?
The remaining revaluation surplus for that asset transfers directly to retained earnings. IAS 16.41 permits this transfer on disposal. The surplus does not recycle through profit or loss. The gain or loss on disposal is calculated as the difference between disposal proceeds and the carrying amount at the disposal date.