Revaluation model for owner-occupied property and the revaluation surplus

Confusing the IAS 16 revaluation model with the IAS 40 fair value model routes gains through the wrong statement (OCI versus profit or loss) and misapplies the class-of-assets and surplus-offset rules, distorting both profit or loss and equity presentation for owner-occupied buildings that sit alongside fair-valued investment property on the same balance sheet.

Has the revaluation model been elected for the entire class of owner-occupied assets, rather than selectively for a single building? On revaluation, is any increase recognized in OCI (revaluation surplus) unless it reverses a prior decrease previously charged to profit or loss? On a decrease, is it first offset against any existing revaluation surplus for that same specific asset before any excess is charged to profit or loss? Is the valuation kept sufficiently current, and is the revalued amount depreciated over the asset's remaining useful life?

1) Confirm the class of assets to which the property belongs (e.g. all owner-occupied administrative/commercial buildings) and elect the revaluation model for the entire class, not a single building. 2) Obtain a fair value for the property, normally via an independent qualified valuer, with sufficient regularity to keep the carrying amount from materially diverging from fair value. 3) On each revaluation, compare the new fair value to the current carrying amount for that specific asset. 4) If the result is an increase: recognize it in other comprehensive income and accumulate in a revaluation surplus within equity, UNLESS the increase reverses a decrease of the same asset previously recognized in profit or loss, in which case recognize the increase in profit or loss up to the amount previously expensed, with any excess to OCI. 5) If the result is a decrease: first offset it against any existing revaluation surplus for that same asset (debit the surplus, reducing OCI/equity), and recognize any remaining excess decrease in profit or loss. 6) On subsequent depreciation, optionally transfer the realized portion of the surplus (the difference between depreciation on the revalued amount and depreciation on original cost) directly to retained earnings each period, and transfer any remaining surplus balance to retained earnings on disposal.

Measure the property at fair value at the date of revaluation less any subsequent accumulated depreciation and impairment, with the whole class of similar assets revalued to avoid selective revaluation. Recognize increases in OCI and accumulate in a revaluation surplus within equity, unless the increase reverses a previous decrease of the same asset previously recognized in profit or loss, in which case that portion is recognized in profit or loss. Recognize decreases in profit or loss except to the extent of any credit balance existing in the revaluation surplus for that asset, which is debited first. Subsequent to revaluation, depreciate the revalued amount over the asset's remaining useful life.

Disclose the effective date of revaluation, whether an independent valuer was involved, the methods and significant assumptions used in estimating fair value, the carrying amount that would have been recognized had the assets been carried under the cost model, and the movement in the revaluation surplus during the period including any transfer to retained earnings as the asset is used or disposed of.

• Revaluing only the head office building while leaving similar owner-occupied properties in the same class at cost (selective revaluation is not permitted)
• running decreases through profit or loss without first checking for and offsetting an available surplus on that specific asset
• recognizing a revaluation increase in profit or loss by analogy to the IAS 40 fair value model instead of OCI
• failing to keep valuations current, resulting in a stale carrying amount materially different from fair value
• forgetting to depreciate the revalued amount over the remaining useful life after revaluation.