IAS 16 – Property, Plant and Equipment & IAS 40 -Investment Properties

Have I got this right?

Situation 1

A company owns and occupies a building. It will be reported under IAS 16, and carried at cost less accumulated depreciation. If it is revalued upwards (say by $10,000), the revaluation is credited to the revaluation reserve. If it is subsequently valued again and it is an estimated decrease of $20,000, this decrease is treated as:

– a $10,000 debit is made against the revaluation reserve to cancel the previous increase.

-a further £10,000 is debited straight to profit and loss as a charge for the period.

I am assuming above that there has not yet been any depreciation charged. If there had been, the revaluation would be calculated as the difference between the fair value and the cost less accumulated deprecation.

The new depreciation charge will be calculated based on the revalued amount. This increased amount over the previous depreciation is technically the realisation of the revaluation increase in stages, so is the double entry:

CREDIT Accumulated Depreciation X
DEBIT Depreciation (P&L) X
DEBIT Revaluation reserve X

Situation 2

A company purchases a building that is not held for sale and they do not occupy it. It will be reported therefore under IAS 40, and initially will be reported at cost.

Subsequent measurement can either be as per IAS 16 (cost less accumulated deprecation), or at fair value. When the property is revalued, any increase or decrease is not taken through the revaluation reserve, but is instead recognised through P&L for the period in which it relates.

Again, depreciation is calculated on the revalued amount, but the whole charge is taken to the P&L as there is no balance on the revaluation reserve (and the increase or decrease has already been recognised).

Situation 3

A company owns and occupies a building which is reported under IAS 16 at cost less accumulated depreciation. It decides to relocate but not sell the building, and instead let it out commercially. At the date they move out, its fair value is determined and it will now be reported under IAS 40. This initial revaluation is a treated as a credit to the revaluation reserve, but:

– further increase are treated as a profit for the period via P&L

– any decreases will go to cancel the balance on the revaluation reserve until it is zero, after which further decreases are treated as a loss for the period via P&L.

Again, depreciation is calculated based on the revalued amount.

I fear I may have mixed up some rules there, so wanted clarification. I have ignored stuff like estimating fair value at the same time of year, all same class of assets at the same time etc…