Question about subsequence cost of IAS 16

"ABC company believes that in four years time, the production line will require a major overhaul to ensure it generates economic benefits for the next six years. The estimated overhaul cost at 31 December2016 was $6,000,000." Should this overhaul be capitalized?

Your Answer

IAS 16 permits two accounting models:
Cost model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30]
 
Revaluation model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably. [IAS 16.31]
The revaluation model
Under the revaluation model, revaluations should be carried out regularly, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. [IAS 16.31]

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