Property, Plant & Equipment: Q5

Q5: If a firm chooses to use the revaluation model to value a class of Property, plant and equipment, how frequently does a firm need to revalue this class of Property, plant & equipment?

A: 

If a firm uses the revaluation model for a class of Property, plant & equipment, then it is a matter of judgement by the firm as to how frequently it revalues that class of Property, plant & equipment:

“…Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.”

AASB 116 para 31

When using the revaluation model, it is a question of judgement for a firm as to how frequently it revalues items of Property, plant and equipment:

“The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.”

AASB 116 para 34

Study Guide Chap 5 pages 5-8 & 5-9

 

Advertisements