Question
Thorncliff Estates applies the revaluation model to land under IAS 16.
| Date | Event |
|---|
| January 5, 2025 | Purchased land for $150,000 cash. |
| December 31, 2025 | A professional valuation reports the land’s fair value as $190,000. The company revalues the land. |
Required: Prepare the entry for the land purchase and the year-end revaluation. The $40,000 increase is credited to a Revaluation Surplus (equity/other comprehensive income).
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 16 — Property, Plant and Equipment
Initial cost captures everything needed to bring the asset to its location and working condition — purchase price, import duties, site preparation, installation and testing. After recognition, subsequent expenditure is capitalised only if it improves the asset beyond its original standard; otherwise it is repairs.
Common mistakes
- Expensing delivery, installation or testing costs that form part of initial cost.
- Capitalising routine maintenance, or expensing an upgrade that genuinely extends useful life.
- Including recoverable input tax or abnormal wastage in the cost of the asset.
IFRS vs US GAAP: IFRS permits the revaluation model for a whole class of assets; US GAAP requires historical cost.
Further readingIAS 16: initial cost and depreciation