What is a Revaluation Surplus?

A revaluation surplus is an equity account in which is stored any upward changes in the value of capital assets that exceed its prior book value. This surplus is only used when you are following the Revaluation Model to account for fixed assets. This approach is only allowed under International Financial Reporting Standards. No revaluation surplus is allowed for a firm that uses Generally Accepted Accounting Principles.

Accounting for a Revaluation Surplus

When you revalue an asset upward, the incremental increase in the asset’s fair value over its prior carrying amount is a credit to the revaluation surplus account. Or, if there is a decrease in the asset’s value as part of the revaluation process, then the decrease is first offset against any prior revaluation surpluses - after that, any residual decrease in value is charged to expense. If a revalued asset is subsequently dispositioned out of a business, any remaining revaluation surplus is credited to the retained earnings account of the entity.