Treatment of Revaluation Surplus on Re-classification of PPE to “Asset Held for Sale”

Para 41 of Ind AS 16, Property, Plant and Equipment, states that the revaluation surplus included in equity in respect of an item of property, plant, and equipment may be transferred directly to retained earnings when the asset is de-recognized. This may involve transferring the whole of the surplus when the asset is retired or disposed of and para 15 of Ind AS 105, Non-Current Assets Held for Sale and Discontinued Operations, states that an entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell.

An entity has to value the asset at the lower of its carrying amount and fair value less costs to sell during the classification of PPE to “asset held for sale”, but the revaluation surplus already in the books will be de-recognized from the books on asset disposal as per Ind AS 16. This story will take you through a case study that will discuss the perplexing aspect of how revaluation surplus be treated when PPE is re-classified to “asset held for sale.

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