Study guide
3.3 Revaluation of Non-Current Assets & Disposals
ACCA Applied Knowledge — Financial Accounting FA
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1 Chapter 1: Context & Qualitative Characteristics of Financial Reporting
1.1 Scope, Purpose & Governance of Financial Reporting 1.2 Users, Stakeholders & Types of Business Entity 1.3 The IASB Conceptual Framework & Qualitative Characteristics 1.4 Accounting Concepts, Assumptions & Principles
2 Chapter 2: Double-Entry Bookkeeping & Accounting Systems
2.1 The Accounting Equation & Double-Entry Mechanics 2.2 Books of Prime Entry & Source Documents 2.3 Ledger Accounts & Sales / Purchase Tax (VAT) 2.4 Computerized Accounting Systems & Internal Controls
3 Chapter 3: Recording Tangible & Intangible Non-Current Assets
3.1 Capital vs Revenue Expenditure & IAS 16 Acquisition 3.2 Depreciation Methods, Accounting & Changes in Estimate 3.3 Revaluation of Non-Current Assets & Disposals 3.4 Intangible Non-Current Assets & Research & Development (IAS 38)
4 Chapter 4: Accounting for Specific Transactions
4.1 Inventory Valuation, Cost Formulas & Net Realisable Value (IAS 2) 4.2 Irrecoverable Debts & Allowance for Receivables 4.3 Accruals, Prepayments & Payables 4.4 Provisions, Contingent Liabilities & Contingent Assets (IAS 37)
5 Chapter 5: Capital Structure, Trial Balance, Control Accounts & Bank Reconciliations
5.1 Capital Structure, Share Capital, Reserves & Dividends 5.2 Extracting the Trial Balance & Errors Not Affecting Trial Balance 5.3 Control Accounts, Discrepancies & Control Account Reconciliations 5.4 Bank Reconciliations & Correction of Errors via Suspense Account
6 Chapter 6: Preparing Basic Financial Statements
6.1 Statement of Financial Position (IFRS 18) Structure & Preparation 6.2 Statement of Profit or Loss and Other Comprehensive Income (IFRS 18) 6.3 Events After the Reporting Period (IAS 10) 6.4 Incomplete Records Techniques & Single Entry Conversion
7 Chapter 7: Statement of Cash Flows
7.1 Objective, Benefits & Structure of IAS 7 Cash Flows 7.2 Operating Activities: Direct vs Indirect Method Calculations 7.3 Cash Flows from Investing & Financing Activities
8 Chapter 8: Group Accounts
8.1 Group Accounting Concepts: Subsidiaries, Associates & IFRS 10 / IAS 28 8.2 Consolidated Statement of Financial Position: Goodwill & NCI Calculations 8.3 Consolidated Statement of Financial Position: Intra-Group Balances & Unrealised Profits 8.4 Consolidated Statement of Profit or Loss & Associates Equity Accounting
9 Chapter 9: Interpretation of Financial Statements
9.1 Profitability, Return & Margin Ratios 9.2 Liquidity, Working Capital & Working Capital Cycle Ratios 9.3 Solvency, Gearing & Debt Risk Ratios 9.4 Investor Ratios & Limitations of Financial Ratio Analysis
3.3 Revaluation of Non-Current Assets & Disposals
Key Takeaways Explain This Topic AI
Under IAS 16, upward revaluations are recorded as a Debit to the Asset, Debit to Accumulated Depreciation (to eliminate it), and Credit to Revaluation Surplus (OCI/Equity).
An annual transfer of 'excess depreciation' may be made from the Revaluation Surplus to Retained Earnings.
A downward revaluation (impairment) first offsets any existing Revaluation Surplus for that asset, with the remainder expensed to the P&L.
On disposal, the gain or loss is calculated as the Disposal Proceeds minus the Carrying Amount at the date of disposal.
The disposal T-account centralizes the removal of the asset's cost and accumulated depreciation, and the recording of the sale proceeds to yield the final gain/loss.
Last updated: July 2026
The Revaluation Model (IAS 16)
While assets are initially measured at cost, IAS 16 allows entities to adopt the Revaluation Model for entire classes of property, plant, and equipment. Under this model, an asset is carried at a revalued amount (fair value at the date of revaluation) less any subsequent accumulated depreciation and impairment losses.
Revaluations must be made with sufficient regularity to ensure that the carrying amount does not differ materially from the fair value at the end of the reporting period.
Accounting for an Upward Revaluation
When an asset is revalued upwards, the gain is generally not recorded in the Statement of Profit or Loss. Instead, it is recorded in Other Comprehensive Income (OCI) and accumulated in equity under a heading such as Revaluation Surplus (or Revaluation Reserve).
The double entry to record an upward revaluation involves three steps:
Re-state the asset's cost to the new revalued amount.
Eliminate existing accumulated depreciation on that asset down to zero.
The balancing figure is the gain credited to the Revaluation Surplus.
Journal Entry: Debit: Non-Current Asset Cost (to increase it to the revalued amount) Debit: Accumulated Depreciation (to entirely eliminate the historical balance) Credit: Revaluation Surplus (with the total gain)
Worked Example: A building originally cost $500,000. Accumulated depreciation is $100,000 (carrying amount = $400,000). The building is revalued to $650,000.
The asset account needs to increase from $500k to $650k = Dr $150k.
Accumulated depreciation must be eliminated = Dr $100k.
Total Revaluation Surplus gain = $650,000 (Fair Value) - $400,000 (Carrying Amount) = Cr $250k.
- Dr: Building Cost/Valuation $150,000 Dr: Accumulated Depreciation $100,000 Cr: Revaluation Surplus $250,000
- Depreciation Post-Revaluation & Excess Depreciation Transfer
Following a revaluation, future depreciation must be based on the new revalued amount divided by the remaining useful life .
Because the asset's carrying amount has increased, the annual depreciation expense will also increase. This higher depreciation charge reduces the retained earnings in the P&L faster than if the asset had not been revalued. To compensate for this, IAS 16 permits (but does not mandate) a transfer of the excess depreciation from the Revaluation Surplus directly to Retained Earnings.
Excess Depreciation = (New Depreciation based on Revalued Amount) - (Old Depreciation based on Historical Cost)
Journal Entry for the Transfer: Debit: Revaluation Surplus Credit: Retained Earnings (Note: This transfer happens directly within equity and does not pass through the Statement of Profit or Loss).
Downward Revaluation (Impairment)
If an asset's value falls below its carrying amount, it suffers a downward revaluation.
If there is no existing Revaluation Surplus for that specific asset, the loss is charged immediately as an expense in the Statement of Profit or Loss .
If there is an existing Revaluation Surplus for that specific asset (from a previous upward revaluation), the downward loss first offsets the Revaluation Surplus. Any remaining loss is then expensed to the P&L.
Disposals of Non-Current Assets
When a business sells, scraps, or trades in a non-current asset, it must remove the asset from the Statement of Financial Position and calculate a Gain or Loss on Disposal to be recorded in the Statement of Profit or Loss.
The Gain or Loss Formula
The basic formula to determine a gain or loss is straightforward: Gain / (Loss) on Disposal = Disposal Proceeds - Carrying Amount at Date of Disposal
If Proceeds > Carrying Amount = Gain on Disposal (treated as other income).
If Proceeds < Carrying Amount = Loss on Disposal (treated as an expense).
The Disposal T-Account
To execute the accounting entries, a temporary Disposal Account is opened. The steps are:
Remove the Asset's Original Cost:
- Dr: Disposal Account
- Cr: Non-Current Asset Account
Remove the Accumulated Depreciation:
- Dr: Accumulated Depreciation
- Cr: Disposal Account
Record the Proceeds (Cash received or Part-Exchange allowance):
- Dr: Cash / Bank (or new asset if part-exchange)
- Cr: Disposal Account
Balance the Disposal Account: The balancing figure on the Disposal Account represents the gain or loss. A credit balance indicates a gain (to be transferred to P&L), and a debit balance indicates a loss.
Part-Exchange (Trade-In) Transactions
Often, an old asset is traded in as part-payment for a new asset. The trade-in allowance given by the supplier constitutes the disposal proceeds for the old asset.
Worked Example: Zeta Co decides to trade in an old van for a new van.
Old van: Original cost $30,000, Accumulated depreciation $22,000. (Carrying Amount = $8,000).
New van: List price $45,000.
Trade-in allowance given for the old van: $10,000.
Cash paid by Zeta Co to clear the balance: $35,000.
Step 1: Calculate Gain/Loss on old van: Proceeds (Trade-in allowance) = $10,000.
Carrying Amount = $8,000.
Gain on Disposal = $10,000 - $8,000 = $2,000 Gain .
Step 2: Record the New Van: The new van is recorded at its full fair value / list price of $45,000. This is funded by the $10,000 trade-in allowance and $35,000 cash. Dr: Motor Vehicles (New) $45,000 Cr: Cash $35,000 Cr: Disposal Account $10,000 (Proceeds for old van)