When moving from IAS 16 cost model to IAS 40 Fair value model we first calculate revaluation surplus if the fair value is greater than the carrying amount. But we didn’t use to calculate the revaluation surplus in the cost model. Why do we do it for this case?
The key is that at the date of change we need the most up to date value, so we need to record any increase regardless of whether it has always been held under the cost model. As the revaluation is then done under IAS16 then we follow the principles there, i.e. gains through OCI.
From a business perspective, most property is held under the revaluation model and not the cost model, so we would rarely encounter the scenario where the property is held under the cost model.