How to approach it
- Revalued asset: roll forward each year (depreciation, then revaluation) using the revised residual value from the revaluation date.
- Split revaluation movements: increases to OCI unless they reverse a previous P&L loss; decreases against any surplus first, then P&L.
- Multi-unit building: allocate cost per unit, then land/building within the owner-occupied units.
- Write the notes with the required headings: measurement basis, useful lives, gross and net amounts, reconciliation, revaluation details.
Key rules to apply
- IAS 16: revaluations must be kept up to date; under the elimination method, accumulated depreciation is eliminated against gross carrying amount.
- Residual value and useful life are reviewed at least annually; changes are estimates.
- IAS 40: investment property at fair value is not depreciated; gains and losses go to P&L. Disclose the reconciliation of opening to closing carrying amount.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Leaving out basic disclosures such as measurement basis and useful lives (examiners' point).
- Depreciating land within the building cost.
- Forgetting the investment property note altogether.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q9 without copying it.
Original practice question
Revalued facility and a part-let building
A facility bought on 1 July 2023 for Rs 330m (15-year life, residual Rs 30m) is revalued to Rs 315m at 31 December 2024 (residual unchanged) and to Rs 260m at 31 December 2025 (residual now Rs 25m). No revaluation was needed at 31 December 2023. Surplus is not transferred to retained earnings.
On 1 September 2025 the company bought four identical units for Rs 400m (25% land). Two are used as offices (building life 20 years), two are held for rent. The fair value of each rented unit rose by Rs 1.5m a month.
Required: Calculate the figures for the 2025 notes.
Worked solution
| Facility | Rs m |
|---|---|
| Carrying amount 31 Dec 2024 before revaluation: 330 − 20 × 1.5 | 300.00 |
| Revaluation surplus 2024 (OCI) | 15.00 |
| Depreciation 2025: (315 − 30) ÷ 13.5 | 21.11 |
| Carrying amount before 2025 revaluation | 293.89 |
| Decrease to 260 | 33.89 |
| … against surplus (OCI) | 15.00 |
| … to P&L | 18.89 |
| Units | PPE (Rs m) | Investment property (Rs m) |
|---|---|---|
| Cost (2 units each) | 200 (land 50, building 150) | 200 |
| Depreciation Sep–Dec: 150 ÷ 20 × 4/12 | 2.5 | – |
| Fair value gain: 1.5 × 2 units × 4 months | – | 12 |
| 31 December 2025 | 197.5 | 212 |
Answer: Facility: OCI −Rs 15m, P&L −Rs 18.89m, closing Rs 260m. Offices Rs 197.5m in PPE; investment property Rs 212m with a Rs 12m gain.