IAS 16

This topic contains 26 replies, has 8 voices, and was last updated by Avatar of vian87 vian87 3 years, 6 months ago. This post has been viewed 36 times

Viewing 20 posts - 1 through 20 (of 27 total)
  • Author
    Posts

  • avatar
    poonum
    Participant
    • Topics: 1
    • Replies: 6

    Hi

    Revaluation of an asset
    say as if an asset cost £4000 at 01.10.99 ans revalued on 1.10.04to £6000
    how to calculate the depreciation prior to depreciation and the amount to the revaluation reserve
    please help me on this

    thanks
    best wishes


    Avatar of Furqan
    Anonymous
    • Topics: 3
    • Replies: 37

    where is the life of the asset is it to be assumed lolz? u r asking how to calculate depriciation prior to depriciation what does that mean ???


    avatar
    poonum
    Participant
    • Topics: 1
    • Replies: 6

    sorry forget about this
    say 10 years


    Avatar of Furqan
    Anonymous
    • Topics: 3
    • Replies: 37

    why did u forget an important point..! do u ever forget to drink water a day ?? now i m not telling


    Avatar of Furqan
    Anonymous
    • Topics: 3
    • Replies: 37

    befor revaluation 400/yr

    after 5 years nbv wud b 2000

    now in increase in value is 4000

    entry wud b
    Dr acc depriciation 2000
    Dr Asset 2000
    Cr Rev reserve 4000


    avatar
    poonum
    Participant
    • Topics: 1
    • Replies: 6

    is there an amount going into retained earning


    avatar
    mrjonbain
    Participant
    • Topics: 0
    • Replies: 45

    After the revaluation then the amount of depreciation charged would increase to 1200 and this would be debited to the income statement as depreciation expense and credited to accumulated depreciation accounts. This is because 6000/5 years = 1200 per year.The revaluation reserve would be debited by 800 per year and the retained earnings account would be credited by 800 by means of a transfer between the reserves(revaluation reserve and the retained earnings reserve) to deal with the fact that retained earnings would otherwise be lower than they would have been had the revaluation not taken place- clearly a nonsensical situation.In this way the revaluation reserve is also lowered to zero over the remaining life of the asset.


    Avatar of jackchitan
    jackchitan
    Participant
    • Topics: 3
    • Replies: 31

    I like the explanation by mrionbain good job and the working by Furgan but am jst doubting the double entry to me the double is as below

    DR Assets 4000
    Cr Rev Reserve 4000
    Before revaluation there was a double entry already
    Dr Acc dep’n 2000
    Cr Assets 2000
    this gives the effect of the NBV of 2000 passing another Dr of 2000 to be is a duplication lets argue it


    Avatar of MikeLittle
    MikeLittle
    Participant
    • Topics: 0
    • Replies: 5485

    You’re wrong Jack – sorry. Jonbain is correct. Jack, before the revaluation, the double entry would have been Dr Income Statement ( through the Depreciation Expense Account ), Credit Accumulated Depreciation, not Dr Accumulated Depreciation, Cr Asset.

    There’s no argument – you’re wrong!


    Avatar of jackchitan
    jackchitan
    Participant
    • Topics: 3
    • Replies: 31

    I see the sense we are adding the 2000 to the 4000 to bring the cost to 6000 the Dr of 2000 to the acc dep’n is to write off the balance so that in yr 6 the balance is 1200 is that the logic.


    Avatar of MikeLittle
    MikeLittle
    Participant
    • Topics: 0
    • Replies: 5485

    A revaluation is primarily an adjustment to depreciation – we have depreciated too much ( on reflection ) so the initial adjustment is to debit the Accumulated Depreciation Account and credit Revaluation Account. Once Accumulated Depreciation Account has been eliminated, any further revaluation is debited to the asset and credited to the Revaluation Account.

    Now we have an asset carried at revalued amount of $6,000 with a remaining estimated useful life of 5 years,

    6,000 / 5 = 1,200 per annum depreciation from year end 30 September ’05 for the next five years


    avatar
    mrjonbain
    Participant
    • Topics: 0
    • Replies: 45

    Thanks werty for helping to clear up the points that Furgan and I were making. In addition in order to clarify the argument to jackchitan and others the 1200 depreciation is “made up” of 400 depreciation thatwould have been charged regardless of whether any revaluation had taken place or not and 800 that resulted from the revaluation- 1200-400=800.this is where I got the value for the reserve transfer between the revaluation reserve and retained earnings.


    Avatar of MikeLittle
    MikeLittle
    Participant
    • Topics: 0
    • Replies: 5485

    Quite right – it’s considered to be best practice – so that retained earnings are not hammered by an additional depreciation expense as a result of the revaluation. So, transfer the “excess depreciation” the 800 ( ie $4,000 / 5 remaining years ) from revaluation to Retained Earnings


    avatar
    poonum
    Participant
    • Topics: 1
    • Replies: 6

    thanks a lot for helping me to understand this area in IAS 16-PPE
    let say if at yr end of 30.09.04,the double entry will be
    Dr asset 4000
    Cr Revaluation reserve 3200
    Cr retained earning 800

    so that in extract of income statement for the year ending 30.09.04
    provision for dep 4000/5 800
    statement of fin position for the yr ending 30.09.04
    asset 6000
    prov for dep 800
    nbv 5200

    equity side
    rev reserve 3200
    retained earning 800


    Avatar of Furqan
    Anonymous
    • Topics: 3
    • Replies: 37

    Poonum u r again confusing and making noodles of this question!! :-D

    @ year end 30.9.04 what do u mean by this double entry??
    Dr asset 4000
    Cr Revaluation reserve 3200
    Cr retained earning 800??


    Avatar of jackchitan
    jackchitan
    Participant
    • Topics: 3
    • Replies: 31

    U guys are great I didnt see things at ur angle I look for more but I don’t know whats happening with the F7 calender may be Warty knows


    Avatar of Furqan
    Anonymous
    • Topics: 3
    • Replies: 37

    also u r not taking care of cutt off..! revaluation took place after the year end.. See the complete solution again and try 2 make ur mind rotate like hard disk :-D


    Avatar of jackchitan
    jackchitan
    Participant
    • Topics: 3
    • Replies: 31

    if we were to prepare the financial statement for the year Poonum what period are u looking at? may be that is what is missing – nothing is going to the Rev reserve before 30.09.04 at that stage the double entry is as below
    DR Depreciation 400 (income statement)
    Cr Acc depreciation 400 (Balance sheet)
    revaluation took effect after 01.10.04


    Avatar of Furqan
    Anonymous
    • Topics: 3
    • Replies: 37

    exactly jackchitan..!!


    avatar
    poonum
    Participant
    • Topics: 1
    • Replies: 6

    You r right .thank

Viewing 20 posts - 1 through 20 (of 27 total)

You must be logged in to reply to this topic.