Accounting for Land Revaluation Under Ind AS 16

1. Question

Skyline Infra Limited (hereinafter referred to as “the company”) is engaged in real estate development. The company holds a parcel of land valued at Rs. 2,00,00,000 on its books. During the financial year 2023–24, the company revalued this land for the first time, based on a report from a certified valuer and prevailing market conditions. As a result, the book value of the land was increased by Rs. 30,00,000.

However, in the financial year 2024–25, due to a downturn in the property market and updated valuation reports, the company reassessed the value of the same land and recorded a downward revaluation of Rs. 40,00,000

State how the revaluation shall be accounted for in the books of the company in the FY 2023-24 and 2024-25.

2. Relevant Provision

Ind AS 16 – Property Plant and Equipment

Para 29 – An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.

Para 31 – After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.

Para 39 – If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss.

Para 40 – If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.

3. Analysis

In the present case the company opted to adopt the revaluation model regarding its asset land in the FY 2023-24. Ind AS 16 allows the company to carry an asset at fair value provided it can be reliably measured. Based on a certified valuer’s report and prevailing market conditions, the land is revalued upward by Rs. 30,00,000, bringing its carrying amount to Rs. 2,30,00,000. Further, as per Ind AS 16, the increase in value shall be recognised in Other Comprehensive Income (OCI) and accumulated in equity under the heading of revaluation surplus.

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