- This topic has 5 replies, 3 voices, and was last updated 13 years ago by
.
- Posts
Dear tutor,
I have a question re the depreciation of the revalution increase of non-current assets.
E.g. say an asset acquired on 1 Dec 20×7 at $80m.
entry for the transaction is:
Dr. Non-current assets $80m
Cr. Cash $80mOn 30 Nov 20×8, the asset had an fair value of $100m
entries for the year:
Depreciation:
Dr. Profit or loss ($80m/5) $16m
Cr. Non-current assets $16m
Now, the carrying amount of the asset=($80m-$16m=$64m)
Revaluation:
Dr. Non-current assets ($100m-$64m) $36m
Cr. Revaluation reserve $36m
Now, the carry amount of the asset=$100mThen, on 30 Nov 20×9,
Depreciation:
Dr. Profit or loss ($100m/4) $25m
Cr. Non-current assets $25m
Now, the carry amount of assets = ($100m – $25m)=$75m
For the revaluation reserve recognised throught depreciation:
Dr. Revaluation reserve $9m
Cr. Gain on recognised revaluation reserve ($36/4) $9mThen, revalustion increase has no impact on Retained Earning?
As, Depreciation $25m – Gain on recognised revaluation reserve $9m = $16m.
It is same as the original impact on R/E?
Then, in the typical SOPF consolidation question. The movement of revaluation increase (the additional depreciation due to the value increase) is a deduction item for group R/E. How it comes?Thank you so much in advance. I’m so confused here!
Hi – from what you have written, it sounds to me like the “9” adjustment should be added to Retained Earnings – through Statement of Changes as well as shown as an addition in Comprehensive Income
- Topics: 7
- Replies: 25
- ☆
Dear faniacca
journal entries are the following
DR profit and loss accounting depreciation charge (full) 25
CR Accumulated depreciation 25
DR Revaluation Reserve 9
CR Profit loss 9
in order to understand the situation just imagine you have an asset with a fair value 100 and there were not any revaluation increase, so your yearly expense with depreciation would be 25.
But in our case overall expense is 25- gain on amotisation of revalusation decrease 9, which is equal to 16, so we have already used the revaluation gain for the year 9. After revaluation you have some kind of “new” asset and you expect more economic benefit inflow . And there is no any need to add 9 in Comprehensive Income, I don’t know whether I was able to explain clear enough)
am I right Mike??I believe that the “9” should also feature in Comprehensive Income
Otherwise, yes, that seems ok
- Topics: 7
- Replies: 25
- ☆
Thank you very much Mike, for your support and advices
- You must be logged in to reply to this topic.