- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Hello,
Why extra depreciation following a revaluation of an asset can be debitedbto revaluation surplus and credited to retained earnings?
The additional depreciation is charged to P&L and accumulated depreciation in financial statements already..
Thanks,
StefanoSo the entry that you’re asking about is ADDING to retained earnings! Think of it as “compensation” for the fact that this year’s profits have been reduced by this extra depreciation expense caused by the revaluation.
As each year goes by, the profits for those years are being “unfairly” reduced because of that additional depreciation so this (recommended, not required) transfer from revaluation reserve to retained earnings is to get back to a retained earning figure that would have been apparent if we hadn’t revalued.
Does that make it easier for you?
- You must be logged in to reply to this topic.