Enquiry:

Based on our understanding, the new Companies Act, 2017 does not specify any treatment for surplus on revaluation of fixed assets. However, if we look in the applicable accounting standards, they specify different disclosure requirements for medium-sized and small-sized companies. Section 17.15C of IFRS for SMEs states that:

“the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus”.

On the other hand, section 2.9 of the ‘Revised Accounting and Financial Reporting Standard for Small-Sized Entities (AFRS for SSEs)’ states that:

“the increase shall be credited directly to the Surplus on Revaluation of Fixed Assets and disclosed in the Statement of Financial Position after Capital and Reserves”.

Please clarify, can the surplus on revaluation, in case of small-sized companies, be shown under the heading of equity after capital and reserves or it will have to be shown outside equity as was the previous legal requirement?

Opinion:

The Board would like to highlight that the specific section relating to the surplus on revaluation of fixed assets (section 235 of the repealed Companies Ordinance, 1984) has not been carried forward in the Companies Act, 2017.

Consequently, the accounting treatment and presentation of the surplus on revaluation of fixed assets shall be in accordance with the applicable accounting and reporting standards (i.e. IFRS, IFRS for SMEs, AFRS for SSEs) whereby the surplus on revaluation will be presented under equity.

It is to be noted that the fifth schedule of the Companies Act, 2017 requires the revaluation surplus on property, plant and equipment to be disclosed as a separate line item on the face of the financial statements.

 (October 02, 2017)