What are the two models to measure assets?

What are the two models to measure assets?

• A. Only revaluation model
• B. Fair value model
• C. Cost model and Revaluation model
• D. Only cost model

Answer: (C)

Under IFRS, after initial recognition an asset such as property, plant and equipment can be carried using one of two measurement approaches: the cost model or the revaluation model. With the cost model, the asset is carried at its cost less accumulated depreciation and impairment. With the revaluation model, the asset is carried at a revalued amount, which is the asset’s current fair value at the date of revaluation, and then depreciation is charged on that new amount. Revaluations are typically carried out with sufficient regularity so that the carrying amount does not differ materially from fair value; increases are usually recorded in equity as a revaluation surplus (unless offsetting a prior decrease charged to profit or loss), while decreases affect profit or loss unless they reverse a previous surplus. Fair value plays a role in determining the revalued amount, but there isn’t a separate “fair value model” as a standalone option for PPE. The supported approaches are essentially cost or revaluation.

Under IFRS, after initial recognition an asset such as property, plant and equipment can be carried using one of two measurement approaches: the cost model or the revaluation model.

With the cost model, the asset is carried at its cost less accumulated depreciation and impairment. With the revaluation model, the asset is carried at a revalued amount, which is the asset’s current fair value at the date of revaluation, and then depreciation is charged on that new amount. Revaluations are typically carried out with sufficient regularity so that the carrying amount does not differ materially from fair value; increases are usually recorded in equity as a revaluation surplus (unless offsetting a prior decrease charged to profit or loss), while decreases affect profit or loss unless they reverse a previous surplus.

Fair value plays a role in determining the revalued amount, but there isn’t a separate “fair value model” as a standalone option for PPE. The supported approaches are essentially cost or revaluation.