revaluation of PPE

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  • Profile photo of QIN
    QIN
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    June 09-Q3 Coaltown, the note of PPE, C.V. of property is revalued upwards by 5m, accumulated depren is 2m. Why 5m-2m added to PPE. I think just 5m which is already net.


    Profile photo of QIN
    QIN
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    I think the C.V. has already been deducted 2m accu derpn for getting to 5m net increase, why wrong?


    Profile photo of Najiya
    Najiya
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    qn says: “revalued the carrying amount of its property upwards by $5 million”.
    the adjustment 5m-2m is done to the cost, not carrying value, in the answer. depreciation part is done separately.


    Profile photo of QIN
    QIN
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    Thanks, Najiya, I cant still understand why less 2m. Carrying amount is not C.V.? I think here Carrying amount is the NBV after charging this year’s deprn? Why wrong?


    Profile photo of Najiya
    Najiya
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    qn gives cost & depreciation separately and there are other adjustments also.
    Regarding revaluation, CV is up by 5m. (CV = Carrying value = carrying amount)
    here, we are doing the adjustment separately to cost & depreciation.

    entry for revaluation is:
    Dr. Asset
    Dr Accum depn
    Cr.Revaluation reserve
    the amount which goes to R.R is the revaluation on CV, here, 5m.
    accum depn for this asset given 2m
    what is balance?…..5m-2m= 3m debit asset

    hope that clears ur doubt.


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    nevyana
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    I am also confused how 2m depreciation goes to the Revaluation reserve.
    Revaluation entry would be:
    Dt Asset 5m
    Cr RR 5m


    Then depreciation charge entry:
    Dt Depreciation expense 2m
    Cr Accumulated depr 2m

    And why in the end there is Dt Acc depr/ Cr RR?


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    nevyana
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    I found the answer of my above post question.

    It is under IFRS 3, in the additional guidance:
    “During the measurement period, the acquirer shall recognise adjustments to the
    provisional amounts as if the accounting for the business combination had been
    completed at the acquisition date. Thus, the acquirer shall revise comparative
    information for prior periods presented in financial statements as needed,
    including making any change in depreciation, amortisation or other income
    effects recognised in completing the initial accounting”
    I.e. depreciation expense shall be accounted as if it existed as at the acquisition date and this can be done only affecting the Retained earnings.


    Profile photo of MikeLittle
    MikeLittle
    Keymaster
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    Why not think about it this way? If an asset is to be revalued, is that not effectively saying that the depreciation charged in prior years was over / under provided. So the revaluation is first of all set against the Accumulated Depreciation. Only after that account has been reduced to zero will we then turn to the asset account and debit the additional revaluation to the asset account.


    Profile photo of Vipin
    Vipin
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    caoqin,

    the gain in revaluation is 5m.

    cv+gain =revalued amt.
    cost-acc depn+gain= revalued amt. (since CV=cost-acc depn)
    gain = revalued amt-cost +acc depn.
    in other words,
    CR RR 5m
    DR PPE (revalued amt-cost) 3m
    DR acc depn 2m


    Profile photo of QIN
    QIN
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    Thanks for these detailed steps. Very useful. But I still think the question expression leads misunderstanding.


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    nevyana
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    1981, you are right, if were understandable who would buy the textbooks and the kits of the publishers, already have a headache of this exam


    Profile photo of Vipin
    Vipin
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    caoqin,

    dont expect ur examiner use same style in your text book. this is a professional exam. they may ask a simple concept in little confusuing style. here, they didnt ask anything confusing. you are not thorough with the concept, that is all.
    when u r in doubt, think postively, it is good. doubt arise when a concept is not understood enough. or it could be you had misunderstanding in your first reading. very often, i read something i understand something else esp if the concept is new for me. it gets clear and more obvious when we practise questions.

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