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Hi!
I have a few questions related to depreciation of revalued assets, please correct me if I wrong:
Assume all scenarios happened at the end of the reporting date
1) Cost 110
Depreciation 10
FV 110NBV (110-10) = 100
Revaluation (110 -100) = 10
Statement of Other Comprehensive Income (SOCI) 10
SOCIE 10
SFP 102) NBV 110
Depreciation 10
Revaluation surplus 20
FV 90NBV (110-10) = 100
Revaluation (90 – 100) = (10)
SOCI (10)
SOCIE 20-10 = 10
SFP 103) NBV 110
Depreciation 10
FV 90NBV (110-10) = 100
Revaluation (90 – 100) = (10)
Statement of Profit and Loss (10)
NO impact on SOCI
NO impact on SOCIE
NO impact on SFP, except for NBV4) NBV 110
Depreciation 10
Revaluation surplus 20
FV 50NBV (110-10) = 100
Revaluation (50 – 100) = (50)
Statement of Profit and Loss (30)
Statement of Other Comprehensive Income (20)
SOCIE 20-20 = 0
NO impact on SFP, except for NBV5) Last but not least, please explain transfer for extra depreciation on the revalued amount to retained earnings.
I understand how to calculate the amount and Journal entries. My question is purpose of this transfer and consequences, if Company transfer or doesn’t transfer extra depreciation.Thanks in advance!
Number 5! The purpose is to “compensate” retained earnings because there is an extra charge for depreciation based on the revalued amount. Why should retained earnings “suffer” by being reduced by this additional depreciation just because the company has chosen to revalue their assets?
There are no consequences as such. If the company decides that they don’t want to go through this process then, no problem. If they decide that they do want to go through with it then, again, no problem
As for the others, I got lost in question 1 with “SFP 10” and then the layout for the rest is mind blowing.
Let me try to explain what’s happening.
Upon revaluation:
Dr TNCA
Cr Revaluation ReserveDepreciate for the year based on the revalued figure (beware the date on which the revaluation takes place)
If the company chooses to “compensate” the retained earnings, then transfer from revaluation reserve to retained earnings an amount equal to the excessive depreciation that has been charged on the amount of the revaluation.
Where there has been an impairment (fair value lower than carrying value) the credit entry is easy (Cr TNCA by the difference between carrying value and fair value)
The debit entry is potentially a problem. If the asset has, at some time in the past, been revalued, then Dr the Revaluation Reserve by the amount of the impairment. If there isn’t enough in the Revaluation Reserve, debit the surplus to Statement of Profit or Loss
If the asset has not been the subject of a revaluation in the past, then the debit is straight forward to the Statement of Profit or Loss
Is that all clear now?
Yep, all clear)
Sorry, for such misleading layout. By SFP 10, I meant to say that 10 will go to Revaluation Surplus in Equity Section.
Mike, I appriacate your time and effort for answering my and other members questions.
Thanks!
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