PPE revaluation: update the whole class, then depreciation
Two machines form one asset class. One rises from £60,000 to £90,000 and the other falls from £40,000 to £35,000. The class gains £25,000 overall, but recording that as one revaluation gain hides two different accounting results. On the hypothetical facts below, UK-adopted IAS 16 puts £30,000 in other comprehensive income and £5,000 in profit or loss. Revaluation covers the whole class, while each asset's own history determines where its movement is recognised.
A policy for a class, not a selected winner
IAS 16 paragraphs 29 to 31 permit the cost or revaluation model as an accounting policy, applied to an entire class of property, plant and equipment. Revaluation requires reliably measurable fair value and sufficient regularity that carrying amounts do not differ materially from reporting-date fair values.
Paragraphs 36 to 38 define a class by similar nature and use. Revalue the entire class simultaneously, or within a short rolling programme that keeps valuations current. The purpose is to prevent selective revaluation and a mixture of amounts from different dates. A list containing only assets that rose in value does not meet that objective.
Paragraph 34 makes valuation frequency depend on value movements. Annual revaluation may be necessary for volatile assets, while three or five years may suffice for insignificant changes. There is no universal fixed cycle. This article covers owned depreciable machinery under UK-adopted full IFRS, rather than investment property, right-of-use assets or held-for-sale assets.
Use each asset's revaluation history
Paragraphs 39 and 40 normally put an increase in other comprehensive income, accumulating it in a revaluation surplus within equity. An exception puts an increase in profit or loss to the extent it reverses a revaluation decrease of that same asset previously recognised there.
A decrease normally goes to profit or loss. To the extent a surplus already exists for that same asset, however, the decrease goes through other comprehensive income and reduces that surplus. One machine's surplus cannot be used to absorb another machine's loss. Class-wide coverage and asset-specific recognition work together.
Sources and context, checked :
Revalue both machines
Assume A and B are all the assets in one correctly defined machinery class. Revaluation takes effect on 1 January 2026. Their cost-model carrying amounts immediately beforehand are £60,000 and £40,000, and reliable fair values are £90,000 and £35,000. Neither has an earlier revaluation surplus or profit-or-loss revaluation decrease.
There are no component complications, impairments or intervening transactions. The example is before tax. Actual accounts must assess tax effects under IAS 12 rather than treating the omitted tax entries as nil.
The net carrying-amount entries are Dr PPE A £30,000; Cr OCI/revaluation surplus £30,000, and Dr revaluation expense £5,000; Cr PPE B £5,000. Paragraph 35 also requires consistent adjustment of gross carrying amount and accumulated depreciation. These net entries show the value movement; they do not replace that register work.
| Machine | Before revaluation | Fair value | Recognition on these facts |
|---|---|---|---|
| A | £60,000 | £90,000 | £30,000 increase in OCI/revaluation surplus |
| B | £40,000 | £35,000 | £5,000 expense in profit or loss |
| Class total | £100,000 | £125,000 | £25,000 net asset increase, with the two destinations kept separate |
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Recalculate the charge from the new carrying amounts
Assume both machines remain available for use throughout 2026, each has five years of remaining useful life, residual values are zero and straight-line depreciation remains appropriate. A's annual depreciation becomes £90,000 / 5 = £18,000. B's becomes £35,000 / 5 = £7,000.
Total depreciation for 2026 is £25,000. With no further changes, closing carrying amounts are £72,000 for A and £28,000 for B, totalling £100,000. A's charge is £6,000 higher than its former £60,000 / 5 = £12,000 basis. That extra expense is not a release of the OCI gain into profit.
Paragraphs 48 to 54 require systematic allocation over useful life and at least annual review of residual value and useful life. A higher fair value does not stop depreciation when residual value remains below carrying amount. Do not mechanically restart a full new useful life at the valuation date. Significant components also require separate depreciation.
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Keep reserve movements separate
Paragraph 41 permits transfers of revaluation surplus directly to retained earnings as an asset is used or on disposal. Those transfers do not pass through profit or loss. No transfer is assumed in this example, and the existence of a reserve does not establish a legally distributable amount.
Before posting a valuation, confirm class membership, current fair values and the revaluation history of every asset. Then reconcile the separate OCI and profit-or-loss movements, update gross cost and accumulated depreciation, recalculate depreciation and assess tax. Revaluation also does not replace any applicable IAS 36 impairment work.
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