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Subsequent Measurement for Property Plant & Equipment, Intangible Asset and Investment Property
In the context of the financial reporting and Diploma in IFRS examination, understanding the accounting i.e. mainly the recognition and initial measurement of non-monetary assets (viz. PPE, intangible assets and investment property) is fundamental. Further, it also prepares the foundation for applying the principles of subsequent measurement. While we have previously discussed on when to recognise such assets and how assets are initially measured under IFRS, it is equally important to understand how these assets are measured after their initial recognition, i.e. on subsequent reporting date (subsequent measurement).
For students preparing for the Diploma in IFRS exam, focusing on subsequent measurement for Property, Plant and Equipment (PPE), Intangible Assets, and Investment Property is crucial. These areas not only test your knowledge during the Diploma IFRS examination but also very important while it comes to practical application of these standards as every business has non-monetary assets.
In this blog, we’ll explore the key principles of subsequent measurement for these three asset classes, providing clarity on how to handle them in the exam and in real-world applications. We’ll also highlight the most common pitfalls students face and the practical considerations for effectively mastering these concepts.
Subsequent Measurement: Choices Available for Different types of Assets – An Overview
[A]
PPE – IAS 16
Choice available between:
1. Cost model
OR
2. Revaluation model
Choice available on class-by-class basis.
[B 1]
IA with definite useful life – IAS 38
Choice available between:
1. Cost model
OR
2. Revaluation model
[B 2]
- IA with indefinite useful life
- Goodwill
- IA not available for its immediate use
Cost Model Only (No choice)
[C]
Investment Property (IP) – IAS 40
Choice available between:
1. Cost model
OR
2. Revaluation model
Under Ind AS 40 (Indian Accounting Standards), investment property is subsequently measured using Cost Model only, no choice available. This is carveout from IFRS.
[A] & [B1]
PPE and IA (with definite useful life)
Cost model
| Cost | XXX |
| Less: | |
| Depreciation/ Amortisation | XXX |
| Impairment losses, if any | XXX |
| _____ | |
| Carrying value | XXX |
Revaluation model
| Revalued amount | XXX |
| Less: | |
| Depreciation/ Amortisation | XXX |
| Impairment losses, if any | XXX |
| _____ | |
| Carrying value | XXX |
Accounting for Revaluation Gain / Loss:
Exception Accounting under Revaluation Model:
Derecognition of Revaluation Surplus:
Accounting policy choice of:
On periodic Basis
OR
On de-recognition of assets from
On yearly basis, an amount equivalent to excess depreciation due to revaluation gain, to be transferred to “Retained Earnings” directly
Upon disposal or derecognition, entire balance in revaluation reserve, w.r.t that asset, to be transferred to “Retained Earnings” directly
Question:
A. Cost of an asset – INR 20,000 (carrying value as on 31 March 2014). Revalued as belove:
Answer:
- 31 March 2014 – INR 16,000
- 31 March 2015 – INR 15,000
- 31 March 2016 – INR 22,000
Answer:
- 31 March 2014 – Revaluation loss INR 4,000/-. Debited to P&L (first year loss, general rule).
- 31 March 2015 – Revaluation loss INR 1,000/-. Debited to P&L (General rule, no gain in PY)
- 31 March 2016 – Revaluation gain INR 7,000/-. Accounted as below:
B. Cost of an asset- INR 20,000 (carrying value as on 31 March 2014). Revalued as belove:
Answer:
- 31 March 2014 – INR 22,000
- 31 March 2015 – INR 15,000
- 31 March 2016 – INR 18,000
Answer:
- 31 March 2014 – Revaluation gain INR 2,000/- Credited to OCI (first year gain, general rule).
- 31 March 2015 – Revaluation loss INR 7,000/- Accounted as below:
- 31 March 2016 – Revaluation gain INR 3,000/-. To the extent of PY loss debited to P&L (i.e. gain up to INR 5,000/-), credit to P&L.
[B2] Intangible Assets (with indefinite useful life / Goodwill / IA not available for its immediate use)
Subsequent Measurement Model
| Cost | XXX |
| Less: | |
| Annual impairment loss (in lieu of amortisation) | XXX |
| Impairment losses (Indication based) | XXX |
| _____ | |
| Carrying value | XXX |
- IA with indefinite useful life (viz. brands) / goodwill / IA not available for its immediate use (viz. in process R&D acquired in business combination) cannot be amortised as inability to define useful life
- Annual impairment test is required in lieu of amortisation whether any indicator is present or not
- Indication based impairment
[C] Investment property (IP)
Cost model
| Cost | XXX |
| Less: | |
| Depreciation/ Amortisation | XXX |
| Impairment losses, if any | XXX |
| _____ | |
| Carrying value | XXX |
Disclosure of FV is mandatory for IP in the notes to accounts
Fair value model
- IP is fair valued on EACH reporting date with all gains / losses transferred to the statement of profit and loss
- If one IP measured at fair value, all IPs are required to be measured at fair value (selective approach not allowed)
- Depreciation is NOT provided on the IP measured at fair value
- IP measured at fair value is not tested for impairment
Under Ind AS – Choice of fair value model in addition to Cost model is not available under Indian Accounting Standard – Ind AS 40.
For ACCA’s Diploma IFRS students, mastering the important concepts of financial reporting is very important. Subsequent measurement is one of the important principle of any financial reporting standard viz. Property, Plant & Equipment (PPE), Intangible Assets (IA), and Investment Property (IP). The ability to distinguish between the different measurement models—cost model, revaluation model, and fair value model—is crucial for compliance with IFRS standards and in turn true and fair financial reporting.
For PPE, students must understand how depreciation and impairment affect the asset’s value over time, and how the choice between the cost and revaluation models impacts financial statements. Intangible assets, with their unique nature, require careful attention to amortization and impairment tests, especially for assets with finite or indefinite useful lives. Investment properties, which are measured at fair value, add another layer of complexity, as market conditions continuously affect asset values.
As (future) professionals in the field of accounting and financial reporting, having a good grasp of this measurement requirement is not only essential for passing exams but also for applying IFRS principles in real-world scenarios. By understanding these concepts, you will be equipped to ensure compliance and true and fair reporting, offering valuable insights to businesses and stakeholders. Keep in mind that IFRS is dynamic, so staying updated on any changes or amendments is essential to maintaining your expertise in the field.
Thank you for reading this article. Stay Tuned to our next blog!
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