Chapter 8: Non-current assets

Example 1 - Revaluation increase. Panama bought an item of property, plant and equipment for $80 million on 1 January 2012. The asset had zero residual value and was to be depreciated over its estimated useful life of 20 years. On 1 January 2015 the asset was revalued to its fair value of $95 million.

Example 2 - Revaluation decrease. On 1 January 2013, Panama purchased an item of property, plant and equipment for $12 million. Panama uses the revaluation model to value its non-current assets. The asset has zero residual value and is being depreciated over its estimated useful life of 10 years. At 31 December 2014, the asset was revalued to $14 million but at 31 December 2015, the value of the asset had fallen to $8 million. Panama has not taken the effect of the revaluation at 31 December 2015 in its financial statements.

In both examples Panama transfers the excess depreciation on the revalued asset from the revaluation reserve to retained earnings each year (the notes' worked answers make this transfer).

Example 3 - Change in estimate. Ecuador bought an item of property, plant and equipment for $25 million on 1 January 2012 and depreciated it over its useful life of 10 years. On 31 December 2014, the asset's remaining life was estimated as 5 years.

All three entities have a reporting date of 31 December. Work in $000 ($1 million = 1,000).