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May 7, 2020 at 4:04 pm
Where else could one get these wonderful lectures and wouldn’t pay a penny? Thank you so much John. I dearly appreciate your patience especially in answering our ‘silly’ questions.? Most importantly I really admire your temperateness!
May 7, 2020 at 3:39 am
Sir,I have a doubt. I dont know if its silly but its just for confirming.. Here the original cost was 3.6m whereas revalued amount was 3.072 which was lesser than original cost thus it was credited to reduce the amount.. So if incase the revalued amount was higher than the original cost like suppose original cost is 3.6m whereas revalued amount is 3.8.. so what will be the effect? Wont the opposite happen? The differrnce amount will be debited as revaluation reserve below the balance of 3.6m to increase to thr revalued amount right? Please do help me confirm,im not really sure if I understood this well. Thankyou sir.
May 7, 2020 at 4:16 am
And im also confused while revaluing if we are concerned with the carrying value.. and if we are comparing the revalued amount with carrying value then the revalued amount is an increase in value.. then why is it that we are comparing it with original cost and reducing the amount of original cost ? I know I must be sounding pretty silly,but i just confused myself completely!
John Moffat says
May 7, 2020 at 9:49 am
If there was no revaluation then the asset would appear on the sOGP at the original cost less the accumulated deprecation.
If we revalue, we replace the cost with the revalued amount and we remove the accumulated depreciation (and in future we depreciate on the revalued amount).
The surplus on revaluation is always the difference between the revalued amount and the carrying amount that previously existed.
Check the entries slowly again and you will see how this has been achieved. Before the revaluation we had the SOFP showing the cost less the accumulated depreciation. After the revaluation the cost account is showing the revalues amount and the accumulated depreciation has zero balance, so the new carrying amount on the SOFP is the revalued amount.
April 18, 2020 at 2:24 pm
Hi John,thanks for the lecture.But there is no working shown in the notes for chapter 13 and even the answer key asks us to refer th lectures.It would be really helpful if you can explain how depreciation is calculated on the revalued amount.
April 18, 2020 at 3:55 pm
If you refer back to the chapter on depreciation, then example 5 is the same example but I say in the lectures for depreciation that I will work through it in the lectures on limited companies (because it is only limited companies who will revalue assets). The answer is in the notes in the answers to the examples in the depreciation chapter.
April 19, 2020 at 3:14 pm
Thank you so much for your prompt reply! It instantly cleared a major doubt.
March 29, 2020 at 3:03 pm
Can a company issue bonus shares from the revaluation account?
March 29, 2020 at 3:21 pm
Yes they can (unless the laws of the specific country prohibit it, but that is outside the scope of Paper FA). They can use any reserve, but will prefer to use capital reserves (for the reason explained in the lectures).
For Paper FA it will always be from the share premium account.
November 22, 2019 at 9:02 am
Hello Sir I didn’t understand why you did not subtract the accumulated dep of 1080000 from the cost while you were calculating the dep for the 6 months
September 23, 2019 at 1:46 am
I have been following open tuition from last couple of weeks and had understood every single lecture that I had to listen to. But I have got to admit that I really struggled with this lecture. I couldn’t understand a word and it seems like I have gone back to zero.
I feel really bad about myself.
November 15, 2019 at 3:31 am
Sir I couldn’t understand the logic of revaluation resvers
November 15, 2019 at 12:20 pm
If an asset is actually worth more than the net book value (the carrying value) on the SOFP, then the company can (if it wants to) increase the value. That means there is a profit and this means more is owed to shareholders. However because the profit is only on paper – they have not actually received any cash – the profit cannot be paid to shareholders are dividend which is why it is shown separately as a revaluation reserve.
August 26, 2019 at 4:18 pm
I saw the following lines from the open-tuition course notes. Can you please explain what it means?
“The depreciation charge will be higher than it was before the revaluation, and the excess of the new charge over the old charge should be transferred from the revaluation reserve to retained earnings.”
August 26, 2019 at 4:44 pm
The new depreciation is calculated on the revalued amount, whereas before it would have been calculated on the original cost (and would therefore have been lower).
The company will charge the new depreciation (which reduces the profit and therefore reduced retained earnings). However they can then transfer the difference between the new depreciation and the old depreciation from the revaluation reserve to the retained earnings.
May 7, 2020 at 3:38 am
December 12, 2018 at 5:22 pm
what if we get a negative balance on the revaluation .. should we minus it from the equity part ?
November 15, 2018 at 3:39 pm
Sir, I quote from the lecture notes “The depreciation charge will be higher than it was before the revaluation, and the excess of the new charge over the old charge should be transferred from the revaluation reserve to retained earnings”. What would the double entry be? I understand we would DR the revaluation reserve to reduce it, but where would it go to? Would we DR retained earnings to reduce that as well?
November 15, 2018 at 4:18 pm
Debiting two accounts would not be double entry 🙂
We DR revaluation reserve, and CR retained earnings. As a result, the total reserves will not change, but the distributable reserve (retained earnings) is higher and the non-distributable reserve (revaluation reserve) is lower.
November 15, 2018 at 4:26 pm
But surely if the depreciation charge is higher, would that not reduce distributable reserves as well? Does it not reduce the value of the asset and therefore what shareholders are entitled to (retained earnings)? Why does it not reduce retained earnings? Therefore total reserves should be reduced
November 16, 2018 at 6:15 pm
Retained earnings and revaluation reserve are both reserves. so reducing revaluation reserve and increasing revenue reserve does not change the total owing to shareholders – it simply makes more or the reserves available for distribution as dividend.
It is the total reserves plus the share capital that represent the amount owing to shareholders.
October 28, 2018 at 11:43 am
Sir, why is it necessary to remove the depreciation and then credit the cost a/c in order to re-evaluate, would it not just be simpler to re-evaluate upwards on top of the accumulated depreciation?
October 28, 2018 at 2:49 pm
Because in the asset account we are required to show either the original cost or, if revalued, the revalued amount. Doing what you suggest would end up showing neither in the asset account 🙂
October 2, 2018 at 6:54 pm
I noticed that the depreciation expense and accumulated depreciation just kinda stopped after the 30 June 2003 mark. However, there is still another 6 months from 30 June 2003 to 31 Dec 2003, so shouldn’t the depreciation expense and accumulated depreciation be accounted again?
In this case, the depreciation expense is $30,720 while the accumulated depreciation is also $30,720.
October 3, 2018 at 7:20 am
If you check the answer printed in the free lecture notes, you will see that this has been done.
However the depreciation charge for the second half of the year is 44,522 (not 30,720) – the workings for this are in the notes.
April 18, 2020 at 2:22 pm
Hi John,thanks for the lecture.But the notes do not have any working shown for chapter 13.The answer key asks us to refer the lectures.
See my reply to your other question about this (above).
August 18, 2018 at 10:59 am
Also, how did u get 528000?
August 18, 2018 at 11:11 am
It is the difference between the original cost and the revalued amount, as I explain in the lecture.
August 18, 2018 at 11:36 am
Sir, I thank you for your patience.
August 18, 2018 at 5:54 pm
You are welcome 🙂
August 18, 2018 at 10:54 am
Hello Sir, why did you credit 528000?
To reduce the original cost down to the revalued amount.
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