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Hallo,
I have two questions to revaluations.
1. In the following example:
A company purchased a building on 1 April 2005 for $100,000
at which point it was considered to have a useful economic life of
40 years. At the year end 31 March 2010 the company decided to
revalue the building to its current value of $98,000.
How will the building be accounted for in the year ended 31
March 2010?The author gives the following answer for double entries:
The carrying value of the asset at 31 March 2010 can now be found
and revalued.
Carrying value of non-current asset at revaluation date
(100,000 – (100,000/40 years x 5 years)) 87,500
Valuation of non-current asset 98,000
Gain or loss on revaluation 10,500Double entry:
Dr Accumulated depreciation 12,500
Cr NCA cost 2,500
Cr Revaluation reserve 10,500My Q: the debits and the credits are not equal, shouldn’t they be?
Actually, even though I’m solving this example I can’t write the correct double entries, or I would write them as:
Dr Acc. depr. 12500
Cr Reval. rezerve 2000
Cr NCA 10500
– is that wrong or right, and is the author’s double entry wrong or right?2. When talking about a loss generated from a revaluation, I read that:
2.1. A revaluation loss should be charged against any related revaluation
surplus to the extent that the decrease does not exceed the
amount held in the revaluation reserve in respect of the same
asset. Any additional loss must be charged as an expense in the
income statement.But, in another book it is said:
2.2. Other comprehensive income
Items that will not be reclassified to profit or loss:
-> Gains/losses on property revaluationMy Q: are these two statements talking about one and the same thing, or am I interpreting it wrong, as I understand the first as recording the outstanding loss to I/S, and the second saying – no you don’t do that?
Thank you!
1. The correct entry is Dr Accumulated depreciation 12,500; Cr NCA cost 2,000; Cr Revaluation reserve 10,000
Immediately before the revaluation, the cost of the asset was 100,000 and the accumulated depreciation was 12,500.
The entry above removes the accumulated depreciation and changes the ‘cost’ to 98,000 (which is what we want to end up with)2. 2.1 only relates to the amount by which any revaluation loss exceeds the balance on revaluation reserve. In all other respects, 2.2 is correct.
(In Paper F3 it is extremely unlikely there will ever be any mention of a revaluation loss – only gains)Hallo,
To 1. Now the credits and debits match but where is the Dr entry to the Cr Revaluation Rezerve 10000, I don’t see it, even though I see that Drs = Crs?
Thank you!
Hallo,
Adding to my last question, the Revaluation Rezerve a/c as you say:
Dr Accumulated depreciation 12,500; Cr NCA cost 2,000; Cr Revaluation reserve 10,000
– looks like this:
Revaluation rezerve
Dr side – 2000
Cr side – 12500
a) Cr side – 10000, where is the debit to this?b) consequently Dr 2000 < Cr 22500
– so this a/c itself also is not balanced, how do I balance it?
Thank you!
Sorry – I mistyped in my previous answer.
The correct entry is:
Dr Accumulated depreciation 12,500
Cr NCA cost 2,000
Cr Revaluation reserve 10,500 (not 10,000)I do not understand the rest of your post at all – there is only one entry on revaluation reserve – a credit of 10,500. The debit entries are to accum deprecation and to NCA cost, as above.
Hallo,
Yes, I see where my confusion comes from and that’s why my point is not clear.
1. The reason is that I’ve learnt that in the Revaluation rezerve we usually have more than one entry, and here there is only one entry. I’ve laernt that usually we credit it with the Accumulated depreciation and with the gain if the revaluation is above the original cost. So, following this I thought that here we do the opposite we debit it when the revaluation is lower than the original cost, so we credit it with the Accumulated depreciation and debit it with the NCA, that already makes two entries. Why don’t we do that?
2. I also thought that the opposite entry of crediting the NCA 2000 is the Reval rezerve a/c and same for the Acc depr, that the opposite entry of debititing the Acc depr is the credit to the Reval rezerve? Or in other words we transfer both of these entries to the Reval rezerve, but here we don’t do it, how do I know when to do one entry and when to do more entries?
Thank you!
You can make two entries – it makes no difference whether you make two entries or just one entry (the total of the two amounts. The resulting balance will be the same.
All that matters is that the total of the debit entries is equal to the total of the credit entries.
Hallo,
If it is only one entry what is that I write to it, meaning in the Revaluation rezerve, when I write the number of 10500, usually I write the name of the account from which this number comes next to it, but in this case I have no idea what to write, could you advise?
I know that we don’t study to be accountants but this is the last thing in this example that I’d like to clear.
Thank you!
There are no rules about what to write. (In practice these days it tends to be done by computer anyway, and in exams you are not asked to write up t-accounts)
Correct entry is;
Dr Accumulated Depreciation 12,500
Cr NCA Cost 2,000
Cr Revaluation Reserve 10,500That,s it.
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