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where the valuation takes place. An impairment loss refers to a significant fall
in the value of an asset due to reasons other than ordinary usage of such assets.
Such reasons may include but not limited to time passage, physical damage of
an asset, and technological changes.

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(b) Revaluation model: In this model, after recognition of an asset for the first
time, an item of non-current asset whose fair value can be measured reliably is
required to be carried at a re-valued amount. Re-valued amount is the fair value
at the date of the revaluation less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. It is important that revaluation is
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done when is possible that the carrying amount differs materially from the value
that would be determined using fair value at the end of the reporting period. The
carrying value is measured as the original cost of the asset, minus accumulated
depreciation, amortisation or impairment costs made against the asset. Revaluation
is possible only when the fair value of the asset can be determined reliably. The
fair value of an asset is found if there is market-based evidence from registered
property valuers. Alternatively, it can also be determined by using income or
a depreciated replacement cost approach. The income approach considers the
present value of the future economic benefits or cash flows from the use of an
asset while depreciated replacement cost refers to the cost required to acquire
similar asset at the date of valuation less accumulated depreciation charges.

If it happens that, the carrying value of an asset increases as a result of a
revaluation, the increment is recognised in the statement of profit or loss as
other comprehensive income and it is accumulated in the equity under the
heading of revaluation surplus. The increase shall be recognised in the profit
or loss statement to the extent that it reverses a revaluation decrease of the
same asset previously recognised in the profit or loss. However, if an asset’s
carrying amount is decreased as a result of a revaluation, the decrease shall be
recognised in the profit or loss statement. The decrease is recognised in the part
of other comprehensive income to the extent of any credit balance existing in the
revaluation surplus associated with that asset. It is meant to reduce the amount
accumulated in equity under the heading of revaluation surplus.

Student’s Book Form Five
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