Under IFRS, all long lived assets (tangible/intangible & definite/indefinite life*) can be revalued upwards to fair value - and this value can bypass the previously recorded loss or the original cost. The adjustments would be:
1) The new carrying value of the asset up to its original cost would be recorded in PP&E
2) A gain up to the previously recorded loss would be recorded in I/S
3) Any value over the gain or the original cost would be directly recorded in Shareholder's Equity under 'Other Comprehensive Income'
*Note that intangible/indefinite life includes goodwill.
QUESTION: What B/S entry is made on the Asset side of the equation to balance the value entered under 'Other Comprehensive Income'?
References if you are using Schweser:
1) Schweser FRA, Pg. 48, "Revaluation to Fair Value", 3rd paragraph 3
2) Schweser FRA, pg. 24-25, 'Inventory Write Up Example'作者: Houjichasan 时间: 2011-7-11 19:22
Dr. PPE
Cr. Gain or OCI (depends on previous revaluations)作者: llxx 时间: 2011-7-11 19:22
??
Let me work through an example:
Begin B/S:
PPE: 30
Other Asset: 70
Liability: 50
Equity: 50
1) Assume PPE is impaired by 10, then:
I/S: record loss of 10
B/S:
PPE: 20
Other Asset: 70
Liability: 50
Equity: 40 (-10 reflected through RE)
2) Assume PPE is revalued to 40, then:
I/S: record gain of 10
B/S:
PPE: 30 (revalued up to the original cost)
Other Asset: 70
Liability: 50
Equity: 60 (+10 reflected through RE AND +10 as part of OCI, fair value over original cost)
Asset requires +10 to be balanced - which ACCOUNT do we increase?作者: lucasg85 时间: 2011-7-11 19:22
Trekker Wrote:
-------------------------------------------------------
> ??
>
> Let me work through an example:
>
> Begin B/S:
> PPE: 30
> Other Asset: 70
> Liability: 50
> Equity: 50
>
> 1) Assume PPE is impaired by 10, then:
>
> I/S: record loss of 10
>
> B/S:
> PPE: 20
> Other Asset: 70
> Liability: 50
> Equity: 40 (-10 reflected through RE)
>
>
> 2) Assume PPE is revalued to 40, then:
>
> I/S: record gain of 10
>
> B/S:
> PPE: 30 (revalued up to the original cost)
> Other Asset: 70
> Liability: 50
> Equity: 60 (+10 reflected through RE AND +10 as
> part of OCI, fair value over original cost)
>
>
> Asset requires +10 to be balanced - which ACCOUNT
> do we increase?
As far as I remember, only inventory is revalued up to original amount written-down .. So if you have revalued inventory down to 20 then value goes up to 40
you will have inventory 30
gain +10 only .. not 20
For PPE, you will revalue it in this case to 40 - not only 30 ..
you will have PPE 40
gain +10 in Income Statement (amount previously written off) and 10 in OCI
That's my understanding 作者: scarecrow 时间: 2011-7-11 19:22
You are correct - that makes sense.
So, to conclude, under IFRS:
1) inventory can only be revalued UP TO ORIGINAL COST or previously stated loss - gain recorded in I/S
2) PPE can be revalued UP TO FAIR VALUE - if this value is above the original cost the additional amount is recorded in OCI AND any gain up to the original cost or previous loss recorded in I/S作者: redskins44 时间: 2011-7-11 19:22
Trekker Wrote:
-------------------------------------------------------
> You are correct - that makes sense.
>
> So, to conclude, under IFRS:
>
> 1) inventory can only be revalued UP TO ORIGINAL
> COST or previously stated loss - gain recorded in
> I/S
>
> 2) PPE can be revalued UP TO FAIR VALUE - if this
> value is above the original cost the additional
> amount is recorded in OCI AND any gain up to the
> original cost or previous loss recorded in I/S
