03-31-2009, 10:50 PM
Dear Smraza,
It is not the case. If an entity states its PPE under revaluation model, it can get back to the Cost model merely by changing the accounting policy. Paragraph 29 of IAS-16 states that any one of two models could be used as accounting policy. Since every accounting policy could be changed (within permitted framework), there is no bar on getting back to cost model if revaluation model was previously opted. We may see entities which present some classes of PPE uner cost model and other under Revaluation model at the same time.
Requirement is to revlaue entire class of PPE items if for that class Revaluation model has to be used. It means if freehold land is decided to be shown under revaluation model, you can not leave some pieces of land on cost and select some pieces of land to be revalued. You will have to revalue the entire class i.e. all the freehold lands you own. However, you are at liberty to show freehold land under revlauation model and building under cost model simultaneously.
As far as changing of policy from revaluation model to cost model is concerned, you can see number of examples in the years 2004 and 2005 when SRO 45 (revising section 235 of CO84) was issued by SECP suggesting the treatment of incemental depreciation and involving adjustments of related deferred tax, which concept was not followed in Pakistan due to overriding differnce in section 235 of the CO84. After that revision of law an emphasis was given on fresh revaluations with regular frequency (that is required by IAS 16) which prompted so many units to re-opt the cost model.
I would like to mention that initial application of a policy requiring the use of revlauation model instead of cost model has not to be treated under IAS-8. I refer paragraph 17 of IAS-8 in this regard. However, the change of accounting policy from revlauation model to cost model would be under IAS-8, as per my understanding.
Regards,
KAMRAN.
It is not the case. If an entity states its PPE under revaluation model, it can get back to the Cost model merely by changing the accounting policy. Paragraph 29 of IAS-16 states that any one of two models could be used as accounting policy. Since every accounting policy could be changed (within permitted framework), there is no bar on getting back to cost model if revaluation model was previously opted. We may see entities which present some classes of PPE uner cost model and other under Revaluation model at the same time.
Requirement is to revlaue entire class of PPE items if for that class Revaluation model has to be used. It means if freehold land is decided to be shown under revaluation model, you can not leave some pieces of land on cost and select some pieces of land to be revalued. You will have to revalue the entire class i.e. all the freehold lands you own. However, you are at liberty to show freehold land under revlauation model and building under cost model simultaneously.
As far as changing of policy from revaluation model to cost model is concerned, you can see number of examples in the years 2004 and 2005 when SRO 45 (revising section 235 of CO84) was issued by SECP suggesting the treatment of incemental depreciation and involving adjustments of related deferred tax, which concept was not followed in Pakistan due to overriding differnce in section 235 of the CO84. After that revision of law an emphasis was given on fresh revaluations with regular frequency (that is required by IAS 16) which prompted so many units to re-opt the cost model.
I would like to mention that initial application of a policy requiring the use of revlauation model instead of cost model has not to be treated under IAS-8. I refer paragraph 17 of IAS-8 in this regard. However, the change of accounting policy from revlauation model to cost model would be under IAS-8, as per my understanding.
Regards,
KAMRAN.
