ACCA FR December 2026: Where Does the Revaluation Surplus Go? The IAS 16 Mistake That Costs Marks

A revaluation gain on PPE never goes to profit or loss under IAS 16 (unless it reverses an earlier loss on the same asset). It goes to other comprehensive income and sits in equity as a revaluation surplus. Post it to profit and you lose the mark, and your depreciation is usually wrong too.

Why FR candidates keep getting this wrong

In FR, IAS 16 is tested in the single-entity question and again inside group questions. The trap is that "gain" feels like income. But the revaluation model in IAS 16 treats the uplift as unrealised, so it bypasses the statement of profit or loss and is shown in OCI, accumulated in equity.

There is one exception, and examiners love it. If the same asset was previously revalued downwards and that decrease went through profit or loss, a later increase is recognised in profit or loss to the extent it reverses that earlier loss. Only the excess goes to OCI. The reverse applies to decreases: they hit any existing revaluation surplus on that asset first, and only the balance goes to profit or loss.

The second slip is depreciation. Once an asset is revalued, depreciation is charged on the new carrying amount over the remaining useful life, from the date of revaluation. Candidates keep using the old figure. Each year, the entity may transfer the extra depreciation from the revaluation surplus to retained earnings. That is a reserves movement, not an income statement item.

Worked example

A property has a carrying amount of $800,000 and 20 years of remaining life. It is revalued to $1,000,000. No previous revaluations.

Wrong answer:
Dr Property $200,000
Cr Profit or loss $200,000
Then depreciation of $40,000 ($800,000 / 20).

Correct answer:
Dr Property $200,000
Cr Other comprehensive income (revaluation surplus) $200,000
Then depreciation of $50,000 ($1,000,000 / 20), charged to profit or loss.

The wrong version overstates profit by $200,000 and understates the depreciation charge by $10,000. Two errors from one misread.

What to do

1. Ask one question before every revaluation entry: has this asset had a previous revaluation decrease or gain? That decides profit or loss versus OCI.

2. Re-spread depreciation immediately. New carrying amount, divided by remaining life, from the revaluation date. Write the calculation out on its own line so a marker can see it.

3. Do not forget the policy rule. If you revalue one item, you revalue its whole class of PPE. Examiners use this in Section B scenario questions.

FR is a 100-mark, 3-hour exam, and pass rates are regularly under half of candidates. Small, repeatable errors like this one are where the marks go.

Gain goes to OCI, depreciation follows the new number. Two lines, two marks.