# Revaluation of PPE — Upward Revaluation (Gain)
## The Revaluation Model — Key Principles
- PPE is carried at Fair Value at the date of revaluation, less subsequent accumulated depreciation.
- A revaluation gain (FV > CA) is credited to Revaluation Reserve — it does NOT pass through P&L.
- Exception: if the same asset had a prior revaluation loss charged to P&L, that portion reverses through P&L.
- Revaluations must be performed regularly so that CA does not differ materially from FV.
- All assets in a class must be revalued together — cherry-picking is not allowed.
---
## Revaluation Reserve — When Is It Transferred?
The Revaluation Reserve is transferred to Retained Earnings (not through P&L):
| Event | Amount Transferred |
|---|---|
| Asset is used (depreciated) | Extra depreciation = (Revalued depr − Original depr) per year |
| Asset is disposed of | Full remaining Revaluation Reserve balance |
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## Illus 26 — Revaluation After Component Replacement (End of Year 4)
CA before revaluation:
| Component | CA (₹) |
|---|---|
| Plant | 16,90,000 |
| New Motor | 6,00,000 |
| Total | 22,90,000 |
After revaluation to FV = ₹25,00,000:
| Component | Revised CA (₹) | Remaining Life |
|---|---|---|
| Plant | 19,00,000 | 6 years |
| Motor | 6,00,000 | 5 years (new) |
Revaluation Gain = ₹25,00,000 − ₹22,90,000 = ₹2,10,000 → Revaluation Reserve
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## Post-Revaluation Depreciation — Year 5 to Year 8
| Component | Revised CA (₹) | Remaining Life | Annual Depr (₹) | 4-yr Depr (₹) | CA at Yr 8 (₹) |
|---|---|---|---|---|---|
| Plant | 19,00,000 | 6 yrs | 3,16,667 | 12,66,667 | 6,33,333 |
| Motor | 6,00,000 | 5 yrs | 1,20,000 | 4,80,000 | 1,20,000 |
| Total | 17,46,667 | 7,53,333 |
---
## Disposal at End of Year 8
Sale proceeds = ₹6,00,000, allocated between components in proportion to their CA:
| Component | CA (₹) | SP allocated (₹) | Gain/(Loss) (₹) |
|---|---|---|---|
| Plant | 6,33,333 | 5,04,425 | (1,28,908) → P&L |
| Motor | 1,20,000 | 95,575 | (24,425) → P&L |
On disposal: Transfer full Revaluation Reserve balance (₹2,10,000) to Retained Earnings.
Journal:
```
Dr Revaluation Reserve A/c 2,10,000
To Retained Earnings A/c 2,10,000
```