1.) Since the Revaluation model is not permitted under US GAAP, how does the appreciation of land get reflected in the financial statements in the US?
Also Changes in the value of PPE under the revaluation model affect equity directly or profit and loss depending upon the circumstances.
(Institute 230)
Institute, CFA. 2016 CFA Level I Volume 3 Financial Reporting and Analysis. CFA Institute, 07/2015. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
2.) Can you provide an example where equity is affected directly and where P&L is affected?
- As you already mentioned, the Reval model is not permitted under US GAAP, but instead US GAAP (p.478):
"…require(s) that the cost model be used. A key difference between the two models is that the cost model allows only decreases in the values of long-lived assets compared with historical costs but the revaluation model may result in increases in the values of long-lived assets to amounts greater than historical costs."
So there is no appreciation allowed under US GAAP.
-
(p.478)
“Any increase in excess of the reversal amount will not be recognised in the income statement but will be recorded directly to equity in a revaluation surplus account. An upward revaluation is treated the same as the amount in excess of the reversal amount. In other words, if a revaluation initially increases the carrying amount of the asset class, the increase in the carrying amount of the asset class bypasses the income statement and goes directly to equity under the heading of revaluation surplus”
So any increase above the original value will end up in equity.