## Revaluation of PPE: Accounting for Accumulated Depreciation

When PPE is revalued, accumulated depreciation (Acc Depn) must be restated. AS 10 permits two methods.

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### Method 1 – Net Method (Eliminate Accumulated Depreciation)

All accumulated depreciation is eliminated against gross block first; then the net block is stepped up to fair value.

Journal Entries:

Step	Entry
1	Acc Depn A/c Dr [old acc depn] / To PPE Gross Block A/c [old acc depn]
2	PPE Gross Block A/c Dr [revaluation gain] / To Revaluation Reserve [gain]

Result: Post-revaluation → Acc Depn = ₹0, Gross Block = Fair Value.

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### Method 2 – Gross Method (Restate Proportionally)

Both gross block and accumulated depreciation are scaled up proportionally so the net block equals fair value.

Scale Factor = Fair Value ÷ Carrying Amount

Item	New Value	Increase
Gross Block	Old GB × Scale	ΔGB = Old GB × (Scale − 1)
Acc Depn	Old Acc Depn × Scale	ΔAcc Depn = Old Acc Depn × (Scale − 1)
Net Block	Fair Value	= Revaluation Gain

Journal Entry (single entry):

PPE Gross Block A/c Dr [ΔGB] / To Acc Depn A/c [ΔAcc Depn], To Revaluation Reserve [Gain]

> Note: Revaluation Gain = ΔGB − ΔAcc Depn = Fair Value − Carrying Amount ✓

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### Balance Sheet Comparison (Net vs Gross)

	Net Method	Gross Method
Gross Block	= Fair Value	= Old GB × Scale
Acc Depn	Zero	= Old Acc Depn × Scale
Net Block	Fair Value	Fair Value

Both methods yield the same net block and same revaluation reserve — only the gross block and accumulated depreciation presentation differ.

Worked example

### Example 1

Example 1 (5-year asset, revalued at end of Yr 2)

Given: PPE Cost = ₹100 L, Life = 5 yrs, Acc Depn after 2 yrs = ₹40 L

Carrying Amount = ₹60 L, Fair Value = ₹75 L → Revaluation Gain = ₹15 L

Net Method:

1. Acc Depn A/c Dr 40 / To PPE Gross Block 40

2. PPE Gross Block A/c Dr 15 / To Revaluation Reserve 15

Post-revaluation B/S: Gross Block ₹75 L | Acc Depn ₹0 | Net Block ₹75 L

Gross Method:

Scale = 75 ÷ 60 = 1.25

New GB = 100 × 1.25 = ₹125 L (↑₹25 L)

New Acc Depn = 40 × 1.25 = ₹50 L (↑₹10 L)

Net Block = 125 − 50 = ₹75 L ✓

JE: PPE Gross Block Dr 25 / To Acc Depn A/c 10, To Revaluation Reserve 15

Post-revaluation B/S: Gross Block ₹125 L | Acc Depn ₹50 L | Net Block ₹75 L

### Example 2

Example 2 (10-year asset, revalued at end of Yr 4)

Given: PPE Cost = ₹200 L, Life = 10 yrs, Acc Depn after 4 yrs = ₹80 L

Carrying Amount = ₹120 L, Fair Value = ₹150 L → Revaluation Gain = ₹30 L

Remaining life = 6 years

Net Method:

1. Acc Depn Dr 80 / To PPE Gross Block 80

2. PPE Gross Block Dr 30 / To Revaluation Reserve 30

Post-revaluation B/S: Gross Block ₹150 L | Acc Depn ₹0 | Net Block ₹150 L

Gross Method:

Scale = 150 ÷ 120 = 1.25

New GB = 200 × 1.25 = ₹250 L (↑₹50 L)

New Acc Depn = 80 × 1.25 = ₹100 L (↑₹20 L)

JE: PPE Gross Block Dr 50 / To Acc Depn A/c 20, To Revaluation Reserve 30

Post-revaluation B/S: Gross Block ₹250 L | Acc Depn ₹100 L | Net Block ₹150 L ✓

⚠️ Common exam mistakes

In the Net Method, students forget Step 1 (eliminating Acc Depn against Gross Block) and directly debit PPE with the full fair value instead of just the gain.
In the Gross Method, students calculate the increase in Gross Block as only the revaluation gain (₹15 L or ₹30 L) instead of applying the scale factor to the full gross block.
Confusing which account increases in the Gross Method: Acc Depn is CREDITED (increased), not debited.
Forgetting to verify: ΔGB − ΔAcc Depn must equal the revaluation gain — if it doesn't, the scale factor was applied incorrectly.

Bare-Act text Para 35 (Revaluation – treatment of accumulated depreciation) · AS 10 (Revised 2016) – Property, Plant and Equipment · click to expand

If an item of property, plant and equipment is revalued, the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated depreciation at the date of the revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses.

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AS 10 – Revaluation of PPE: Net Method vs Gross Method

Worked example

⚠️ Common exam mistakes