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Hallo,
If we have to find the the balance on the retained earnings rezerve and an example says that there is revaluation of premises e.g. from a carrying value of $50000 to $70000, in the end this is not included, i.e. it is not calculated when finding the balance, and I thought this difference of $20000 has to be added to the rezerve, but it is not, why is it like that?
Thank you!
A surplus on revaluation is not included in the profit on the Statement of profit or loss (and is therefore not included in retained earnings). Instead it is shown as a separate revaluation reserve on the Statement of financial position. The reason is that it is not distributable (i.e. it cannot be paid out as dividend) because it is not a ‘real’ profit. We have only really made a profit when the asset is actually sold.
It might help you to watch the free lecture on limited companies.
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