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Crinckle co bought an asset for $10000 at the beginning of 2006. It had a useful life of five years. On 1 January 2008 the asset was revalued to $12000. The expected useful life has remained unchanged (I.e three years remain) account for the revalution and state the treatment for depreciation from 2008 onwards.
The depreciation for the next three years will be $12000÷3 = $4000, compared to depreciation on cost of $10000 ÷5= $2000. So each year, the extra $2000 can be treated as part of the surplus which has become realised.
Debit revaluation surplus $2000
Credit retained earning $2000My question is why revaluation surplus amount has been transfered to retained earning.
The answer to your question is in your sentence ‘So each year, the extra $2000 can be treated as part of the surplus which has become realised.’
Retained earnings is the account in which the accumulated realised profits of an entity are collected
The revaluation reserve is an account that holds surpluses that an entity has measured when (re)valuing its assets
These surpluses are not realised and it could be the case that they may never be realised
But as each year goes by and the entity charges the depreciation on the revalued amount, that excess depreciation is able to be treated as a realised profit and thus the entity will transfer from unrealised (revaluation reserve) to realised (retained earnings)
OK?
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