Selective PPE Revaluation Not Allowed Under Ind AS 16

1. Question

Techworks Manufacturing Limited (hereinafter referred to as “the company”). The company owns several machines classified under the category “Machinery” in its Property, Plant, and Equipment (PPE) register. At the end of the financial year 2024-25 the company decides to revalue one specific machine having a carrying value of Rs. 10,00,000, which has recently undergone significant technological upgrades and whose market value has substantially increased. The management considers revaluing only this upgraded machine while leaving the rest of the machinery at historical cost with less depreciation.

State whether the accounting treatment adopted by the company complies with the requirements of the Ind AS framework.

2. Relevant Provisions

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 36 – If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.

Para 37 – A class of property, plant, and equipment is a grouping of assets of a similar nature and use in an entity’s operations. The following are examples of separate classes:

• land;
• land and buildings;
• machinery;
• ships;
• aircraft;
• motor vehicles;
• furniture and fixtures;
• office equipment; and
• bearer plants.

Para 38 – The items within a class of property, plant and equipment are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date.

3. Analysis

In the present case, the company owns several machines classified under the “Machinery” category within its Property, Plant, and Equipment (PPE) register. At the end of the financial year 2024–25, the company intends to revalue only one specific machine. It has recently undergone significant technological upgrades and has seen a substantial increase in its market value, while leaving the remaining machinery at historical cost. As per Para 29 of Ind AS16, once an entity opts for the revaluation model, it must apply this policy to the entire class of PPE, not selectively. Ind AS 16 reinforces this by stating that if an item of PPE is revalued, the entire class to which it belongs must also be revalued. In this case, the asset in question belongs to the class of “Machinery,” which includes other machines of a similar nature and use, as defined under Para 37.

Furthermore, Para 38 of Ind AS 16 specifically prohibits selective revaluation of assets within a class, as it may result in the reporting of inconsistent carrying amounts, a mix of cost-based and fair value-based figures within the same asset class, potentially misleading users of financial statements.

4. Conclusion

Based on the provision and analysis of the case, the accounting treatment followed by the company, revaluing only one machine while leaving the others at cost, is not in compliance with the Ind AS framework. To ensure adherence to Ind AS 16, the company must revalue all machinery within the same class or continue applying the cost model uniformly to all assets in that class.

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