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Good day Sir,
Why is it the net of the reval increase and difference in depreciation cost is posted to reval reverse?
If I was preparing this reval increase I would have done the following:
1. Dr. PPE 27m
Cr. Reval Reserve 27m2. Dr. Dep’n 5.6m
Cr. Accum dep’nKindly explain why the difference in depreciation charge affects the reval reserves?
Thank you.
Hi,
The excess depreciation can be recognised as a reserve transfer through the SOCIE. The gain has been taken to OCI, and as a result of the revaluation the depreciation charge is now higher than previously. This increased charge goes through profit or loss, reducing profit and distributable reserves. To ensure that the shareholders do not lose out because of this transaction we can use the revlaution surplus to adjust the retained earnings so that the distributable reserves are not impacted and the expense through reserves is the same as it would have been without any revaluation increase.
Thanks
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