Page 30 - FINAL CFA I SLIDES JUNE 2019 DAY 8

LOS 29.g: Describe how the choice of amortisation method and
assumptions concerning useful life and residual value affect Session Unit 8:
amortisation expense, financial statements, and ratios. p.221
29. Long-lived Assets

Example: Revaluation model, p223. On December 31, 20X1, Parsons Corp. reports a carrying value for an asset class
st
(PP/E) as $30 million and a fair value of $29 million and reports a 1 re-revaluation loss on the income statement of
$1 million. On December 31, 20X2, Parsons determines that the fair market value of the asset class is $1.5 million
above its carrying value. How do we record these?

T PPE revaluation PPE revaluation
PPE
Income Statement
T
(31/12/20x1)
(31/12/20x2)
(31/12/20x3)
Carrying value =30m 31/12/20x1 tanties Income Statement Income Statement
Revaluation loss 31/12/20x1
31/12/20x2
$1million
Balance $29million loss = $1million T T
gain = $1million
31/12/20x2 31/12/20x3
PPE revaluation gain Revaluation loss 31/12/20x23
IS/Equity = $1.5 million $1million PPE revaluation
Balance $29.5million gain = $0.5 million

T
Revaluation Surplus (Equity)
On December 31, 20X3, Parsons determines that the
fair market value of the asset class is $1 million below
its carrying value. What then?
31/12/20x3 31/12/20x2
PPE revaluation gain =
PPE revaluation gain =
$0.5 million $0.5 million