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    • Before the revaluation, the buildings stood at:

      Cost: 3600000
      Dep’n: 1080000
      NBV 2520000

      Immediately after the revaluation we want the balances to be:

      Cost (revalued amount) 3072000
      Dep’n nil
      NBV 3072000

      To achieve this we need to credit the ‘cost’ account with the difference of 528,000.
      We also need to debit the accum. dep’n account with 1080000

      In both cases the double entry is the revaluation account which means the balance there will be 552,000 (which is the overall profit on revaluation – the change in the NBV of 3072000 – 2520000 = 552,000)

  3. After revaluation, we have to depreciate the building based on the new value. However, the depreciation policy stays the same, meaning, to charge 2% straight line. Why don’t you use the 2% but rather calculated the remaining estimated useful life of the building? Will it be wrong if i calculate the depreciation based on the 2%? In that case i’ll have the depreciation as $30720 for the remaining 6 months. Can you please clear this bit for me? Thank you

  4. Please, can you clarify, why we count the expected useful life in secound half of the year, if it says that depreciation policy is to charge 2% straight line? Shouldn’t we just multiply (3 072 000 *2% \ 2) to get secound year’s depreciation expense? Thanks

  11. Dear All,

    please clarify if the balance on ACCUMULATED DEPR. A/C is = 44 522 $ ?

    so on the balance sheet we put:
    a) non-current assets: 3 027 478 $
    building a/c 3 072 000 $
    accum. depr. a/c (44 522) $

    is it correct?

    Thank you so much for your help.

    • No, if revalued amount were greater than original cost in NCA a/c, NCA a/c would have to be debited with the difference between the two and the Revaluation a/c credited thereafter. You have to decide on how you will adjust the cost account, whether by a debit or a credit, for it to reflect the revalued amount in the end. And by the way, revalued amount is not greater than current worth. CV= 3.6m – 1.116m= 2.484m < 3.072m (revalued amt)

  14. Thank you very much Opentuition, however i’ll be grateful if you could plz specify whether we should add up an Accumulated Profit account? If i read page “the excess of the new charge over the old charge should be transferred from the revaluation a/c to accumulated profits. So, here we have an excess of $ 8522 ($80 522 – $ 72 000). Should this amount be reflected in the Accumulated Profit account?
    Thank you

      • @MikeLittle, thank you v much, just one last question if you don;t mind, so in this example, I’ll credit Revaluation Reserve A/C with $588 000 and Debit it by $ 8522. Then, we credit Acc. Profit A/C by $ 8522. Also, what is the purpose of this transfer since we have already accounted for the profit ($ 588000 made in the Revaluation a/c). I mean this is an unrealised profit in any case, why do we need to transfer the excess to Acc. profit a/c? Once again, Thank you so much for your help

    • At the time of revaluation the accumulated depreciation was 1,116,000.
      (3,600,000-1,116,000=2,484,000).
      as 3,072,000 is higher than 2,484,000 it’s a profit.

      You can also see that the depreciation amount has gone up from 72k a year to 89k a year showing that the building is worth more.

      I can’t imagine it’s the sale price but the depreciated amount after 15.5 years. If you calculate that back (89kx15.5years + 3,072,000) then you’ll get something like 4.45m. A tidy profit.

    • at the time of revaluation the accumulated depreciation is 1,116,000.
      We know that the annual amount is 72,000 (2% of 3,600,000). Divide the accumulated dep’n buy the annual figure then you get 15.5 years; i.e. if you charge 72k a year, then it would take 15.5 years to get the balance up to 1,116,000.
      50 – 15.5 = 34.5 years as there is no change in the remaining useful life of the building.
      89k happens to be 2% of the original cost if you calculate the revalued cost back over the previous 15.5 years (ca 4.45M)

      • Hi. I’m confused as to why the useful life needed to be calculated after the asset was revaluated and not before revaluation. To get the figure of 36000 we didn’t need to calculate the number of years? Thanks!

      • We need the remaining useful life in order to calculate the new depreciation figure.

        We didn’t need it to calculate the 36000 because we were told the depreciation had been at the rate of 2% of cost (which was the same as saying that the original useful life was 50 years, because 50 years at 2% is 100%!)

  19. Question No 4 on the test section, page 46, which value of the machine is to be used to calculate the new depreciation charge after the useful life was revised to 3 years ? $70,000 or $52,000 ?

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