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If an asset (land) is revalued in Year 1, from $10,000 to $12,000. The statement of profit or loss and other comprehensive income has a revaluation gain of $2,000 and this created revaluation surplus of $2,000 in the statement of financial position.
In year 2, the asset (land) is then revalued downwards from $12,000 to $11,000.
The accounting entries are:
Dr *** Revaluation Surplus ***
Cr Asset (Land)***Question here: Do we debit other comprehensive income (OCI) or do we JUST debit the revaluation surplus account in the equity?***
I’m pretty sure that I’m correct when I say that the downwards revaluation goes through Statement of Income. That also took me by surprise (as I imagine it has you) Check the IAS for the situation where the fair value model is used instead of the cost model and it says something like “any subsequent changes in the fair value go through Profit or Loss” and post again if you think that I’ve misinterpreted the IAS
Here’s a quote from https://www.iasplus.com/en/standards/ias/ias16
“If a revaluation results in an increase in value, it should be credited to other comprehensive income and accumulated in equity under the heading “revaluation surplus” unless it represents the reversal of a revaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised in profit or loss.
A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset.”
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