IAS 40

Hello, could you please explaine why – the fisrt time it is a revaluation surplus, each following year it will be P\L?

Thanks in advance!

A business owns a building which it has been using as a head office. In order to reduce costs, on 30 June 20X9 it moved its head office functions to one of its production centres and is now letting out its head office. Company policy is to use the fair value model for investment property. The building had an original cost on 1 January 20X0 of $250,000 and was being depreciated over 50 years. At 31 December 20X9 its fair value was judged to be $350,000. How will this appear in the financial statements at 31 December 20X9?

Solution
The building will be depreciated up to 30 June 20X9.
$
Original cost 250,000
Depreciation 1.1.X0 – 1.1.X9 (250/50 ? 9) (45,000)
Depreciation to 30.6.X9 (250/50 ? 6/12) (2,500)
Carrying amount at 30.6.X9 202,500
Revaluation surplus 147,500
Fair value at 30.6.X9 350,000

The difference between the carrying amount and fair value is taken to a revaluation surplus in accordance with IAS 16. However the building will be subjected to a fair value exercise at each year end and these gains or losses will go to profit or loss. If at the end of the following year the fair value of the building is found to be $380,000, $30,000 will be credited to profit or loss.