PPE - revaluation downwards - ACCA Financial Reporting (FR)
YouTube video
35 Comments
E
Ermal·
hi, don't we depreciate twice within same year 2014? once with the HC 12M and the other with the revalued amount of 14M?
A
Andreea·
I don't get why we expense the impairment before debit reserve surplus...Since we have 4,400 reserve surplus at 31.12.2024, aren't we supposed to dr it first before we move to P&L and expense the whole thing?
Z
zachary1982·
Why do we account for deprecation in year 2014 when the asset is revalued upward, but we don't account for deprecation in year 2015 when the asset is revalued downward? It seems selective...and I don't understand why....
F
Farhaan·
Chris mentioned in the lecture prior to this one that any excess depreciation charged due to revaluation of PPE is to be charged from the reserve(the reason is given in detail there so go watch it), regarding your question as to why we don't depreciate in 2015 based on the new Carrying value it is specifically because of the date the PPE was revalued on, it being 31 dec 2015. Since it was revalued at the end of the year we therefore will not depreciate the new Carrying value for this year rather we will do it for the year 2016. But that is not asked in the question. So chris was not simply just selecting numbers at random. Hope this solved your doubt :]
D
DERIE·
IS THERE ANY DIFFERENCE BETWEEN REVALUATION LOSS AND IMPAIRMENT?
M
MUHAMMED SHASEEB·
Hello Sir,
What about accumulated depreciation do we have to Dr Acc Depreciation and Cr PPE (Then only it will come to 8000) and;
Thank you for your lectures
P
PRAVEEN·
Hi Chris,
Why are we debiting £3850 in OCI but not in Revaluation reserve??
L
lightbeetle200·
Please I don’t understand where the excess depreciation is from at 10:22
J
Jennifer·
Hello Chris,
Please why do we have to use up $3,850 in the reserve?
F
Francisco·
I think that´s because the revaluation reserve was 4,400; the excess depreciation was 550; thus the balance was 4,400-550=3,850 that needs to be used up / removed because of the revaluation decrease / impairment. Thus, we debit by 3,850 the revaluation reserve but the value of the impairment was 4250. Then 4250-3850=400 impairment that goes to PL.
S
Sarah·
Hi Chris,
Would you kindly clarify why you're saying that all of $3,850 in the revaluation reserve is going to be used?
And where are the entries for accumulated depreciation & depreciation?
A
Ade·
Sir, ever so grateful for the material. Just a little clarification on the excess depreciation. I read in the ACCA technical articles on PPE that an adjustment for excess depreciation is unnecessary if the question does not specifically state that the entity has a policy for charging excess depreciation from revaluation reserve to retained earnings in respect of revalued assets. Is this correct, as I notice you make this adjustment though no reference to it being the entity's policy is expressly stated in the example questions? Looking forward to your answer and pls keep up the great work.
P
Purvi·
Will there be any reval reserve in SOFP?
A
Abdul·
Why can’t we directly debit revaluation reserve 3,850 instead of OCI?
How charging it to OCI will make revaluation reserve balance zero?
Please clarify
P
Pragya·
we are left with reserves 3850. Now we have a decrease in an asset by 4250(12250-8000), so we will charge 3850 from reserves and the excess 400 (below the historical cost) from P/L
entry will be----
DR Reserve 3850
DR P/L 400
CR PPE 4250
my question is that if we are decreasing reserves by 3850, how can we charge 3850 from OCI also in SPLOCI?
Kindly answer
K
Kerron·
Hi Sir,
Why did $400 go to SPL and $3,850 go to OCI? I understand how you calculated the figures but I don't understand the principle between placing these amounts respectively to SPL and OCI.
P
pawanphanda·
400 is the amount over and above the reserve available so charged from SPL and rest of the amount from OCI.
O
olaristotle75·
Thank you Open
tuition.
A
agisilaos·
Dear sir, the impairment in SPL , where is recognized (example 2)?Thanks in advance for all the material and guidance through lections.
Y
yushengng·
Hi Chris,
For this example, you mentioned removing $3,850 from Revaluation Surplus and the remaining $400 will be charged from P&L directly. Understood that the original Revaluation Surplus of $4,400 have been reduced by $550 due to the $1,750 Depreciation Charge occurred during the year, hence the balance of $3,850.
Does this imply that the $550 have been reduced from the Revaluation Surplus and moved into Retained Earnings to offset the "additional" Depreciation?
Thank you!
Regards,
YuSheng
P
pawanphanda·
That's correct and that's the requirement of IAS 16.
M
monirul11011·
What about revaluation reserve on SFP? You have debited the OCI but there is still 3850 in reserve.
A
accakeisha·
About right!!video is self explanatory....gr8 job
S
Shahnawaz·
Hi,
Had there been no impairment, this would have been the case. We would have transferred 550 to the retained earnings as compensation to the shareholders for increased depreciation which lowers their earnings.
Now if its a case of impairment, we make up for the loss first from Reval reserve i.e. 3850 and 400 from P/L (or an adjustment from retained earnings i.e. 550-400). So hereby we are left with 150 in retained earnings even after covering for the impaired value. So basically we gained in total 4400-4250=150. Where is the treatment for it? And shouldn't be it also included under the head OCI?
S
Shahnawaz·
Hi,
Had there been no impairment, this would have been the case. We would have transferred 550 to the retained earnings as compensation to the shareholders for increased depreciation which lowers their earnings.
Historic Cost Reaval. Model Reval. Reserve
---------------------------------- ------------------ ------------------- -----------------
Cost(1.1.13) 12000
Acc Dep -2400
CV (31.12.14) 9600 14000 4400 OCI=4400
Dep -1200 -1750 -550 Dep=1750
CV 8400 12250 3850
T/f to retained earnings=550
--------------------------------------------------------------------------------------------------
Now if its a case of impairment, we make up for the loss first from Reval reserve i.e. 3850 and 400 from P/L (or an adjustment from retained earnings i.e. 550-400). So hereby we are left with 150 in retained earnings even after covering for the impaired value. So basically we gained in total 4400-4250=150. Where is the treatment for it? And shouldn't be it also included under the head OCI?
Historic Cost Reaval. Model Reval. Reserve
--------------------------------- ------------------- ---------------------- -------------------
Cost(1.1.13) 12000
Acc Dep -2400
CV (31.12.14) 9600 14000 4400 OCI (gain)=150
Dep -1200 -1750 -550 Dep(SPL)=1750
CV (Before) 8400 12250 3850 OCI(impairment)=3850
Impairment -400 -4250 -3850 SPL(impairment)=400
CV after 8000 Nil
A
Alexander·
Hi Chris,
It might be worth mentioning that a revaluation surplus (gain) should be credited to a revaluation surplus (reserve), via other comprehensive income, whereas a revaluation deficit (loss) should be expensed immediately (assuming, no previous revaluation of the asset has taken place).
Thanks for all the resources
Alex
A
Anna·
Hi Chris
In example 2 on Revaluation decrease when the impairement takes place (on 31.12.2015) we have the following balances:
PPE dt 14 000
Acc.depr. ct 1 750 (Depr. exp. dt 1 750)
Reval. reserve/surplus ct 3 850
Retained earn. ct 550
Is that right?
So, we should credit PPE acc with 6 000 but where should go debits - to accum. depr. (1 750)and rev. reserve (4 250) accounts?
Please, could you specify which accounts and with what amounts will be affected?
Thank you!
H
Halsey Irwin·
The working you've shown in the video is so helpful. Thank you so much sir!
M
mohsin17222·
Sir,
why we take -ve 3,850 ? how we can figure it out that this amount is impaired? what is the nature of revaluation account, is it represents income head or expense head cause of loss?
Thanks
M
marina·
Hello,
I think the easiest way to understand which amount is impaired to OCI or P/L is to always think about the "historical" carrying amount (CA). In the last year the "historical" CA was $8400 and the new CA was $12250. Any amount that falls up to "historical" CA is always imparment in OCI. If the amount falls below "historical" CA, then it is an impairment in P/L (loss!).
In this example, the new CA falls from $12250 to Fair Value $8000.
1) consider any impairment up to "historical" CA: $12250 - $8400=$3850 in OCI
2) consider any impairment below the "historical" CA : $8400 - $8000 = $400 in P&L
When I do the revaluation examples, I always imagine a waterfall which falls up to "historical" CA , stops there, and continues to flow below the "historical" CA.
Bests,
Marina
P.S. CA is Carriyng Amount = Carriyng Value
M
mohsin17222·
Well ! Thank you for reply i understand but i need some clarity i am focusing on it again if i have any other dought will ask again.
Thank You
M
mohsin17222·
Sir,
why we take -ve 3,850 ? how we can figure it out that this amount is impaired? what is the nature of revaluation account, is it represents income head of some expense cause of loss?
Thanks
H
Hasan·
Dear Sir,
The asset was revalued for $14m on the last day of the accounting year, yet the dep. charged was for full year ($.55M). If the asset was taken into account on the last day, will we still charge dep on it for the whole year?
H
Hasan·
dep figure is $1.75 m,
P
P2-D2Tutor·
Hi,
I'm pretty sure that this is correct as we are trying to find the carrying value at the end of December 2015 before the impairment down to $8 million. The revalued asset ($14 million) is depreciated over its remaining useful life (8 years) to give the $1.75 million for the year to December 2015.
What about accumulated depreciation do we have to Dr Acc Depreciation and Cr PPE (Then only it will come to 8000) and;
Thank you for your lectures
Why are we debiting £3850 in OCI but not in Revaluation reserve??
Please why do we have to use up $3,850 in the reserve?
Would you kindly clarify why you're saying that all of $3,850 in the revaluation reserve is going to be used?
And where are the entries for accumulated depreciation & depreciation?
How charging it to OCI will make revaluation reserve balance zero?
Please clarify
entry will be----
DR Reserve 3850
DR P/L 400
CR PPE 4250
my question is that if we are decreasing reserves by 3850, how can we charge 3850 from OCI also in SPLOCI?
Kindly answer
Why did $400 go to SPL and $3,850 go to OCI? I understand how you calculated the figures but I don't understand the principle between placing these amounts respectively to SPL and OCI.
tuition.
For this example, you mentioned removing $3,850 from Revaluation Surplus and the remaining $400 will be charged from P&L directly. Understood that the original Revaluation Surplus of $4,400 have been reduced by $550 due to the $1,750 Depreciation Charge occurred during the year, hence the balance of $3,850.
Does this imply that the $550 have been reduced from the Revaluation Surplus and moved into Retained Earnings to offset the "additional" Depreciation?
Thank you!
Regards,
YuSheng
Had there been no impairment, this would have been the case. We would have transferred 550 to the retained earnings as compensation to the shareholders for increased depreciation which lowers their earnings.
Now if its a case of impairment, we make up for the loss first from Reval reserve i.e. 3850 and 400 from P/L (or an adjustment from retained earnings i.e. 550-400). So hereby we are left with 150 in retained earnings even after covering for the impaired value. So basically we gained in total 4400-4250=150. Where is the treatment for it? And shouldn't be it also included under the head OCI?
Had there been no impairment, this would have been the case. We would have transferred 550 to the retained earnings as compensation to the shareholders for increased depreciation which lowers their earnings.
Historic Cost Reaval. Model Reval. Reserve
---------------------------------- ------------------ ------------------- -----------------
Cost(1.1.13) 12000
Acc Dep -2400
CV (31.12.14) 9600 14000 4400 OCI=4400
Dep -1200 -1750 -550 Dep=1750
CV 8400 12250 3850
T/f to retained earnings=550
--------------------------------------------------------------------------------------------------
Now if its a case of impairment, we make up for the loss first from Reval reserve i.e. 3850 and 400 from P/L (or an adjustment from retained earnings i.e. 550-400). So hereby we are left with 150 in retained earnings even after covering for the impaired value. So basically we gained in total 4400-4250=150. Where is the treatment for it? And shouldn't be it also included under the head OCI?
Historic Cost Reaval. Model Reval. Reserve
--------------------------------- ------------------- ---------------------- -------------------
Cost(1.1.13) 12000
Acc Dep -2400
CV (31.12.14) 9600 14000 4400 OCI (gain)=150
Dep -1200 -1750 -550 Dep(SPL)=1750
CV (Before) 8400 12250 3850 OCI(impairment)=3850
Impairment -400 -4250 -3850 SPL(impairment)=400
CV after 8000 Nil
It might be worth mentioning that a revaluation surplus (gain) should be credited to a revaluation surplus (reserve), via other comprehensive income, whereas a revaluation deficit (loss) should be expensed immediately (assuming, no previous revaluation of the asset has taken place).
Thanks for all the resources
Alex
In example 2 on Revaluation decrease when the impairement takes place (on 31.12.2015) we have the following balances:
PPE dt 14 000
Acc.depr. ct 1 750 (Depr. exp. dt 1 750)
Reval. reserve/surplus ct 3 850
Retained earn. ct 550
Is that right?
So, we should credit PPE acc with 6 000 but where should go debits - to accum. depr. (1 750)and rev. reserve (4 250) accounts?
Please, could you specify which accounts and with what amounts will be affected?
Thank you!
why we take -ve 3,850 ? how we can figure it out that this amount is impaired? what is the nature of revaluation account, is it represents income head or expense head cause of loss?
Thanks
I think the easiest way to understand which amount is impaired to OCI or P/L is to always think about the "historical" carrying amount (CA). In the last year the "historical" CA was $8400 and the new CA was $12250. Any amount that falls up to "historical" CA is always imparment in OCI. If the amount falls below "historical" CA, then it is an impairment in P/L (loss!).
In this example, the new CA falls from $12250 to Fair Value $8000.
1) consider any impairment up to "historical" CA: $12250 - $8400=$3850 in OCI
2) consider any impairment below the "historical" CA : $8400 - $8000 = $400 in P&L
When I do the revaluation examples, I always imagine a waterfall which falls up to "historical" CA , stops there, and continues to flow below the "historical" CA.
Bests,
Marina
P.S. CA is Carriyng Amount = Carriyng Value
Thank You
why we take -ve 3,850 ? how we can figure it out that this amount is impaired? what is the nature of revaluation account, is it represents income head of some expense cause of loss?
Thanks
The asset was revalued for $14m on the last day of the accounting year, yet the dep. charged was for full year ($.55M). If the asset was taken into account on the last day, will we still charge dep on it for the whole year?
I'm pretty sure that this is correct as we are trying to find the carrying value at the end of December 2015 before the impairment down to $8 million. The revalued asset ($14 million) is depreciated over its remaining useful life (8 years) to give the $1.75 million for the year to December 2015.
Thanks