Revaluation of fixed casset

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PANKAJ KUMAR SRIVASTAVA (Querist)

19 July 2016 SIR,
A LIMITED COMPANY HAD REVALUED ITS VARIOUS FIXED ASSET LONG BACK IN THE YEAR 2003-04 AND PASSED THE ACCOUNTING ACCORDINGLY.
SIR, NOW THE COMPANY DO NOT WANT TO CARRY OVER THE REVALUATION AMOUNT AND WANTS TO SHOW ITS FIXED ASSET AT HISTORICAL COST.
SIR, IS IT POSSIBLE TO REVERSE THE REVALUATION AMOUNT ? IS THERE ANY LEGAL COMPLICATION ?
PLEASE GUIDE ME.
WITH REGARDS

PANKAJ KUMAR SRIVASTAVA

PANKAJ KUMAR SRIVASTAVA (Querist)

18 August 2016 RESPECTED SIR,
PLEASE GUIDE MEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

21 July 2025 Certainly. Here's a clear and professional response regarding your query on the revaluation of fixed assets:

✅ Reversal of Fixed Asset Revaluation – Guidance
Background:
You’ve mentioned that a Limited Company had revalued its fixed assets during the financial year 2003–04, and now (as of 2016, per your note) wishes to discontinue carrying the revalued amount and revert to historical cost in its financial statements.

🔍 Is it Possible to Reverse the Revaluation?
Yes, it is possible, but with certain considerations.

Under both Indian GAAP and Ind AS (if applicable), once a company adopts the revaluation model, it can later choose to switch back to the cost model. However:

✅ Future Use of Cost Model: The company may opt to use the cost model going forward (i.e., not continue revaluations), but reversing past revaluations already reflected in financial statements must be done carefully.

⚠️ Retrospective Reversal: Generally, accounting standards do not permit a retrospective reversal of revaluation surplus already recorded in equity unless:

It was erroneous or made under misrepresentation.

Or a prior period error is being corrected under AS 5 or Ind AS 8.

🧾 Treatment of Revaluation Reserve:

The Revaluation Reserve shown under Reserves & Surplus may continue until the asset is disposed of or retired.

The reserve may be transferred to retained earnings (surplus in the Statement of Profit and Loss) over time (e.g., when depreciation on the revalued portion is charged), but it should not be reversed through the P&L.

⚖️ Legal / Regulatory Considerations:
Under the Companies Act, 2013:

There is no prohibition on using the cost model after previously using the revaluation model.

However, Schedule III requires proper disclosure of the basis of valuation.

If Ind AS is applicable, then Ind AS 16 governs Property, Plant and Equipment.

Under Ind AS 16:

Change from revaluation to cost model is considered a change in accounting policy, and must be applied retrospectively, unless impracticable.

Prior financials may need restatement, and proper disclosure is mandatory.

Under AS 10 (Revised):

An entity can adopt the cost model anytime.

However, revaluation surplus already recognized cannot be reversed arbitrarily.

📝 Recommendation:
Discontinue future revaluations and switch to the cost model prospectively.

Do not reverse the previously recorded revaluation reserve through the profit and loss account.

Revaluation reserve can be transferred to retained earnings as assets are used or disposed.

Disclose the change in accounting policy and its impact clearly in the notes to accounts.

If in doubt, obtain a formal audit/legal opinion for clarity.

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