Fixed Assets Revaluation Reserve
Equity Reserve from Upward Revaluation of Property, Plant, and Equipment
Fixed Assets Revaluation Reserve is a component of shareholders' equity that arises when a company revalues its property, plant, and equipment (PPE) upward above historical cost under certain accounting standards. It represents the unrealized surplus from fair value adjustments and is kept separate from retained earnings to distinguish revaluation gains from operating profits.
What Is the Fixed Assets Revaluation Reserve?
The Fixed Assets Revaluation Reserve records the net surplus when a company elects the revaluation model for PPE under IAS 16 (IFRS). The asset's carrying amount is adjusted to fair value, with increases credited directly to this equity reserve (bypassing profit or loss).
Downward revaluations are first debited against any existing reserve for that asset; excess goes to profit or loss as impairment.
US GAAP does not permit upward revaluations—PPE remains at historical cost less depreciation/impairment.
How the Reserve Is Created and Used
Accounting entries:
- Upward revaluation: Debit PPE (increase carrying amount), Credit Revaluation Reserve (equity)
- Corresponding deferred tax liability often recognized (debit reserve, credit deferred tax)
- Depreciation based on revalued amount; excess over historical depreciation may transfer from reserve to retained earnings annually
- Upon disposal: Remaining reserve transferred to retained earnings
Revaluations must be kept up-to-date (typically every 3–5 years for volatile assets).
Common Assets and Industries
Most frequently applied to:
- Land and buildings (especially investment property companies)
- Infrastructure assets
- Specialized plant with appreciating values
Common in jurisdictions following IFRS: UK, Australia, Europe, parts of Asia and Africa. Real estate, utilities, and transportation companies often show significant reserves.
Land typically does not depreciate, so revaluation surplus remains in reserve until sale.
Balance Sheet Presentation
Appears in shareholders' equity as:
- Separate line: 'Revaluation reserve' or 'Fixed assets revaluation reserve'
- Sometimes within 'Other reserves' or 'Accumulated other comprehensive income'
- Net of related deferred tax
Movements disclosed in statement of changes in equity and PPE notes.
Advantages and Criticisms
Advantages
- Balance sheet reflects current economic values
- Higher asset base improves borrowing capacity and ratios
- Better representation for assets with long lives/appreciation
Criticisms
- Subjective valuations introduce volatility
- Unrealized gains inflate equity without cash inflow
- Not permitted under US GAAP—reduces comparability
- Restrictions on dividend distribution from reserve
Analytical Implications
Analysts consider:
- Reserve size relative to PPE—indicates revaluation aggressiveness
- Impact on leverage ratios (higher equity base)
- Quality of equity (revaluation gains less 'permanent' than retained earnings)
- Deferred tax effects
- Potential future transfers to retained earnings on realization
Large reserves may overstate economic equity if asset values decline.
Key Takeaways
Fixed Assets Revaluation Reserve holds unrealized gains from upward PPE revaluations (IFRS only).
Created by crediting equity directly; bypasses P&L for increases.
Common for land/buildings in IFRS jurisdictions; prohibited under US GAAP.
Enhances balance sheet values and ratios but introduces subjectivity.
Not freely distributable; realized gradually or upon disposal.
Assess size and sustainability when evaluating equity quality.
Fixed Assets Revaluation Reserve
Equity Reserve from Upward Revaluation of Property, Plant, and Equipment
Fixed Assets Revaluation Reserve is a component of shareholders' equity that arises when a company revalues its property, plant, and equipment (PPE) upward above historical cost under certain accounting standards. It represents the unrealized surplus from fair value adjustments and is kept separate from retained earnings to distinguish revaluation gains from operating profits.
Table of Contents
What Is the Fixed Assets Revaluation Reserve?
The Fixed Assets Revaluation Reserve records the net surplus when a company elects the revaluation model for PPE under IAS 16 (IFRS). The asset's carrying amount is adjusted to fair value, with increases credited directly to this equity reserve (bypassing profit or loss).
Downward revaluations are first debited against any existing reserve for that asset; excess goes to profit or loss as impairment.
US GAAP does not permit upward revaluations—PPE remains at historical cost less depreciation/impairment.
How the Reserve Is Created and Used
Accounting entries:
- Upward revaluation: Debit PPE (increase carrying amount), Credit Revaluation Reserve (equity)
- Corresponding deferred tax liability often recognized (debit reserve, credit deferred tax)
- Depreciation based on revalued amount; excess over historical depreciation may transfer from reserve to retained earnings annually
- Upon disposal: Remaining reserve transferred to retained earnings
Revaluations must be kept up-to-date (typically every 3–5 years for volatile assets).
Common Assets and Industries
Most frequently applied to:
- Land and buildings (especially investment property companies)
- Infrastructure assets
- Specialized plant with appreciating values
Common in jurisdictions following IFRS: UK, Australia, Europe, parts of Asia and Africa. Real estate, utilities, and transportation companies often show significant reserves.
Land typically does not depreciate, so revaluation surplus remains in reserve until sale.
Balance Sheet Presentation
Appears in shareholders' equity as:
- Separate line: 'Revaluation reserve' or 'Fixed assets revaluation reserve'
- Sometimes within 'Other reserves' or 'Accumulated other comprehensive income'
- Net of related deferred tax
Movements disclosed in statement of changes in equity and PPE notes.
Advantages and Criticisms
Advantages
- Balance sheet reflects current economic values
- Higher asset base improves borrowing capacity and ratios
- Better representation for assets with long lives/appreciation
Criticisms
- Subjective valuations introduce volatility
- Unrealized gains inflate equity without cash inflow
- Not permitted under US GAAP—reduces comparability
- Restrictions on dividend distribution from reserve
Analytical Implications
Analysts consider:
- Reserve size relative to PPE—indicates revaluation aggressiveness
- Impact on leverage ratios (higher equity base)
- Quality of equity (revaluation gains less 'permanent' than retained earnings)
- Deferred tax effects
- Potential future transfers to retained earnings on realization
Large reserves may overstate economic equity if asset values decline.
Key Takeaways
Fixed Assets Revaluation Reserve holds unrealized gains from upward PPE revaluations (IFRS only).
Created by crediting equity directly; bypasses P&L for increases.
Common for land/buildings in IFRS jurisdictions; prohibited under US GAAP.
Enhances balance sheet values and ratios but introduces subjectivity.
Not freely distributable; realized gradually or upon disposal.
Assess size and sustainability when evaluating equity quality.
Related Terms
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