Compare the cost model and revaluation model
Distinguish a cost-based carrying amount from periodic remeasurement and explain why a valuation change is not operating income.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover Topic 1.3 only. Practice is self-checked, not an official Cambridge grade; the separately published 2029 syllabus, timed papers and human subject-teacher review remain outstanding.
Before you begin
- Topics 1.1 and 1.2 introduce business resources, equity, double entry and period profit. Use those ideas when recording non-current assets.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A business revalues an asset upward but receives no payment. What happened?
What you will learn
- Describe the cost model
- Describe the revaluation model
- Explain how a carrying amount can differ from sale value
The cost model starts from purchase cost
Under the cost model, an asset is carried at its cost less accumulated depreciation and any required impairment. This shows the unallocated cost after charges; it is not automatically the amount the business could sell the asset for.
The model uses systematic depreciation over the useful life where the asset is depreciable. Estimates and impairment can affect the carrying amount under the applicable requirements.
The revaluation model updates a class of assets
Under a revaluation model, the carrying amount is based on a revaluation to fair value at the revaluation date, less later depreciation and impairment. Revaluations should be sufficiently regular so carrying amounts do not differ materially from fair value.
A revaluation changes the asset's carrying amount and is treated under the relevant accounting requirements; it is not cash received and is not ordinary sales revenue. The accounting entry and reserve treatment depend on the direction of change and prior history.
Pause and explain
An asset has cost $30,000 and accumulated depreciation $9,000. What is its carrying amount under the cost model before other adjustments?
Worked example
An asset cost $40,000, has accumulated depreciation of $12,000 and is revalued to $35,000 under a permitted model. Find its pre-revaluation carrying amount and the increase.
Show the worked solution
- Pre-revaluation carrying amount = 40,000 − 12,000 = $28,000.
- Increase = 35,000 − 28,000 = $7,000.
- The increase is a valuation change, not a cash receipt from sales.
Answer Pre-revaluation carrying amount is $28,000 and the revaluation increase is $7,000, subject to the applicable accounting treatment.
Try a topic test
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A building has cost $120,000 and accumulated depreciation of $30,000. Its fair value at a revaluation date is $100,000. Find the old carrying amount and the change.
Give me a hint
Calculate cost-model carrying amount before comparing with fair value.
Compare my reasoning
- Old carrying amount = 120,000 − 30,000 = $90,000.
- Revalued amount is $100,000.
- Increase = 100,000 − 90,000 = $10,000, subject to relevant accounting rules.
Old carrying amount is $90,000; the increase is $10,000, subject to the applicable revaluation treatment.
Look for these in your work
- Old amount correct
- Comparison correct
- Treatment qualified
A manager says an asset's cost-model amount of $18,000 proves it could be sold for $18,000. Explain why the conclusion is weak.
Give me a hint
Separate a carrying amount from an offer in the market.
Compare my reasoning
- Cost less depreciation is an accounting measurement under the cost model.
- Market value depends on the asset's condition, demand and sale circumstances.
- Sale proceeds may be above or below the carrying amount.
The carrying amount is not proof of sale value. A buyer's offer and the market conditions determine proceeds; any difference from carrying amount produces a gain or loss on disposal.
Look for these in your work
- Measurement identified
- Market factors included
- Disposal difference anticipated
A company revalues its equipment by $9,000 but has no corresponding cash inflow. How should managers explain the change to a lender?
Give me a hint
State what changed and what did not change.
Compare my reasoning
- The reported carrying amount of equipment increased under the revaluation model.
- The revaluation itself did not provide cash to repay the lender.
- The lender should consider cash flow and valuation evidence separately.
The change is a non-cash remeasurement of the asset's carrying amount. It does not create liquidity; the lender should assess cash flow separately and consider the supporting valuation evidence.
Look for these in your work
- Non-cash change stated
- Liquidity distinguished
- Evidence considered
Common mistakes
- Calling a revaluation increase cash income
- Treating cost less depreciation as current market value
- Changing the value of one asset without following the applicable model and requirements
What can you explain now?
Under the cost model, what is the usual starting calculation for carrying amount before impairment?
Compare with the explanation
Cost less accumulated depreciation
This is the unallocated cost under that model.
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Make it stick
How does revalued carrying amount differ from sale proceeds?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.