PPE - revaluation upwards - ACCA Financial Reporting (FR)
YouTube video
50 Comments
B
Bill·
Hello. The video's on YouTube are auto dubbed in some foreign language. I've tried setting it back to English but it's failed. Kindly help.
S
Syari·
done
C
Craig·
I believe there is a mistake on example one question phrasing, reads like 3 years, Chris says 4 years when working through the example
A
Anthea·
No mistake. Depreciation for 3 years before revaluation 2012 -2014 but the question did ask for figures as at Dec 2015, which is an additional year.
G
Gordon·
This method on Example 1 is quite confusing comparing to what we have learnt in Financial Accouting. I prefer using the T account....
A
Abdul·
So should Retained earnings account be credited with the excess depreciation for the rest of the assets life or just in the first year of revaluation?
P
PRAVEEN·
Good question, I was thinking the same.
I guess it should be only for one year.
N
Niraj·
It should be for the rest of the asset's life. Because it will reduce the profit with excess depreciation for the rest of the asset's life. :)
J
jen·
Hi,
Is it a requirement in the exam to do the rounding?
P
PRAVEEN·
Thanks for the lecture Chirs.
But why can't we transfer excess depreciation through P&l?
Secondly I have come across with accountants who divide the revaluation surplus into remaining depreciation life and transfer it to P&L .
Dr RR and Credig P&l. Is this a correct treatment?
Thanks.
C
Califa·
Q:But why can’t we transfer excess depreciation through P&l? - A:there is 5.558 which includes excess of 1.558 and it's in SPLOCI
Q:Secondly I have come across with accountants who divide the revaluation surplus into remaining depreciation life and transfer it to P&L .
Dr RR and Credig P&l. Is this a correct treatment? - not sure what do you mean here, can you show an example
P
PRAVEEN·
For example upward revaluation of 500k has been taken to 50k per year for 10 years.
Dr RR
Cr P&l
P
PRAVEEN·
Also at 19.41 Time it says not through p&l but through Retained earnings.Why not through P&l.?
M
marionnassamula·
isnt the 1st depreciation for 4 years 01-01-2012.......31-12-2015
C
Califa·
no, because you have 1st depreciation before revaluation for period 1/1/12-1/1/15 which is 3 yrs, and after revaluation period is for 1/1/12-31/12/15. How can you calculate entire dep'n for 4 years with two different values? you need to split first for two periods with different values
I don't think so, because 27mil is for ye 2014 and 25412 is for ye 2015. Unless if you are 4 years behind with your accounts and looking to post a journal this way as a quick fix haha
B
Bhavika·
Thankyou so much for that Journal entry section. I think i am an Accountant already. ?
T
thiru2000·
the last part of the journal entry for Reserve transfer, Retained Earning is a Credit balance and how we credit Retained earning with $1,588? An excess depreciation would have resulted a reduction in retained earnings but crediting retained earning by $1,588 results an increase in retained earning? I am sorry , a bit confused?
S
Shahid·
Sir thanks for a very very informative lecture.....i want to ask one thing.....whats the journal entry to show the GAIN in income statement...thanks in advance...hopes u will answer this question....
I
ikhalo·
i cant see any video on my end
L
Ly·
Great Lecturer!
P
PratibhaSupporter·
Hi Chris,
Could you please elaborate the last journal entry. I really couldn't understand the basis.
Many thanks!
S
Sheyla·
Hi, I was wondering.. why the amount of 1,588 is not shown as part of equity in the statement of financial position? (under Retained earnings).
Thanks
L
liamna·
hi ,
I was wondering why the depreciation period was calculated over 17 years when the original useful life is 20 years and we have already depreciatied 3 years ( 2012/2013/2014) before revaluation. 2015 should have been the fourth year and therefore the depreciation after revaluation over 16 years wich is the rest of the useful life ?
L
liamna·
I got it - my mistake
S
Shoukat·
Hi Sir,
Got it till here but what about the subsequent years where revalued amount remains same as 95M and dep exp is 5588? Each year its going from revaluation reserve to retained earnings as 1588?
If yes or no how can it be explained?
Also do we have any question where 2 time revaluation occurs? How to treat it as second time?
U
Umar·
Im still kind of confused so will talk you through my workings
Revaluation
Dr BS PPE 27k
Cr BS Revaluation Reserve (RR) 27k
Depreciation
Dr PL depreciation 5,588
Cr BS PPE 5,588
So at this stage we have
PPE of 89,412
Dep of 5,588
RR of 27,000
Now I understand the excess depreciation is 1,588 so I
Dr RR 1,588
Where does the cr go?
U
Umar·
Ignore this - I got the answer. Should have continued watching the video :)
P
Pragya·
I think OCI and revaluation reserve cannot go at the same time
entries -
DR Asset 27k
CR OCI 27k
----------------------
DR OCI 27K
CR SPLOCI 27K
-----------------------------
DR depn 5588
CR SPLOCI 5588
---------
And charge excess depn from reserves and surplus
---------------------------------------------------------------------------------------
we can either transfer the 27000 in SPL (OCI) or in revelation reserve .sir has credited SPLOCI by 27000 and also is showing revaluation reserve in SFP by 27000 less 1588.This is not possible
A
Ambuj·
Thanks
R
ray·
Can someone please explain the double entry to OCI element. I cant seem to figure it out.
DR Asset 17000
DR acc deptn 12000
CR rev surplus 27000
how do we post OCI
please ignore the additional depreciation element for now.
Help v much appreciated.
A
Ambuj·
Thanks
O
olaristotle75·
Please, what happens to excess depreciation charge if the useful life of an asset is reviewed downward causing the depreciation charge to be less than it was before the review. Do we simply treat the excess amount as normal by crediting the retained earnings and debiting the revaluation surplus (through SOCE)?.
O
olaristotle75·
Causing the depreciation charge to be more that it was before review i mean
D
dmurangwa1·
The excess depreciation is transferred from revaluation surplus to retained earnings as the benefit realized at the reporting date.
O
olaristotle75·
Thank you Opentuition.
A
Anon·
Hello sir,
Thank you for the lecture video above.
Sir, if assuming there are entries such as excess depreciation or disposal of a revalued asset, where we Credit our Retained earnings, are we supposed to show the similar resulting effects in our P/L as well?
Thanks,
Mehr.
S
Suaad·
Why to do CR accumulated depreciation?
P
P2-D2Tutor·
We need to remove the accumulated depreciation to get back to the original cost, and so therefore it is debited (not credited!).
A
AnnaSupporter·
Why do we need to get back to the original cost rather than from 2015 adding new depreciation to accumulated dep?
This asset is effectively treated as a new asset, isn't? If we reserve the accumulated dep are not understated accumulated depreciation?
P
P2-D2Tutor·
So that we can revalue the asset upwards to its new value. The total revaluation is effectively done in two stages. Firstly we are taking the current carrying value to the original cost and secondly increasing the cost to the new value of the asset.
Any new depreciation is then recorded in the usual fashion using the depreciation expense account and the accumulated depreciation account.
Thanks
L
Lucie13Supporter·
Thank you Chris. I believe that a lot of students like me were scratching their heads about the journal entry for the 27k gain in OCI :). Thank you for your reply indeed ? all makes sense now
R
Renee·
What about the statement of changes in equity? Would the revaluation reserve also go there?
R
Renee·
Under the Revaluation Surplus heading?
P
P2-D2Tutor·
Hi,
The gain is recorded in the revaluation reserve, which is part of equity on the statement of financial position. All the company's gains/losses are then disclosed in the statement of profit and loss and other comprehensive income, so as the gain has not been realised it is shown in OCI. There is no additional journal entry for this, it is just purely a matter of presentation.
Thanks
F
f6f7·
Hi Tutor,
I just read your comments which has answered my question. I'm very grateful for this clarification as I kept thinking what was the double entry for the OCI? if the revaluation gain is recognised in the Revaluation reserve (in the SoFP).
D
Debleen·
thanks a lot for the clarification
A
Anja·
Hi Sir,
sorry I think I asked this question already but can't find it in the comment history.
I am getting hung up the designated account for revaluation gain: are we posting to the revaluation reserve in SOFP (Equity - Other Income) or OCI?
I particularly mean the following JE:
DB - Assets SOFP - increase by diff. Reval. and actual cost
DB - Accumm. depr SOFP - remove depr. to date
CR - Revaluation Reserve - Equity or OCI?
DB - Revaluation Reserve - Equity or OCI?
CR - Retained Earnings
Also instructed by IAS1 - Disclose Revaluation Gain in OCI - is this a 'second' step and the initial JE posts to SOFP - Other Income?
Hope my question makes sense!
Thanks,
Anja
S
ssaeed·
I would suggest to use the T-accounts to understand these type of accounting entries.
Initially we need to Debit the PPE and Acc. Depn accounts by 15,000 and 12,000, respectively, and credit the Revaluation Reserve account (not the SFP directly) by 27,000. Then the increase in depreciation of 1,588 (5,588-4,000) will need to be debited to the revaluation reserve account (not the SFP directly) and credited to the SPLOCI (under the OCI section).
As the Revaluation Reserve is an Equity element therefore the ending account balance of 25,412 (Cr 27,000 - Dr 1,588) at the year end (31-12-15) will be shown will be shown as the revaluation reserve under the Equity section in the SFP.
I guess it should be only for one year.
Is it a requirement in the exam to do the rounding?
But why can't we transfer excess depreciation through P&l?
Secondly I have come across with accountants who divide the revaluation surplus into remaining depreciation life and transfer it to P&L .
Dr RR and Credig P&l. Is this a correct treatment?
Thanks.
Q:Secondly I have come across with accountants who divide the revaluation surplus into remaining depreciation life and transfer it to P&L .
Dr RR and Credig P&l. Is this a correct treatment? - not sure what do you mean here, can you show an example
Dr RR
Cr P&l
1. Dr PPE 15000
Dr ACC DEP 12000
Cr OCI 27000
Then
2. Dr OCI 27000
Cr Revaluation Reserve 25412
Cr Retainted Earnings 1588
Could you please elaborate the last journal entry. I really couldn't understand the basis.
Many thanks!
Thanks
I was wondering why the depreciation period was calculated over 17 years when the original useful life is 20 years and we have already depreciatied 3 years ( 2012/2013/2014) before revaluation. 2015 should have been the fourth year and therefore the depreciation after revaluation over 16 years wich is the rest of the useful life ?
Got it till here but what about the subsequent years where revalued amount remains same as 95M and dep exp is 5588? Each year its going from revaluation reserve to retained earnings as 1588?
If yes or no how can it be explained?
Also do we have any question where 2 time revaluation occurs? How to treat it as second time?
Revaluation
Dr BS PPE 27k
Cr BS Revaluation Reserve (RR) 27k
Depreciation
Dr PL depreciation 5,588
Cr BS PPE 5,588
So at this stage we have
PPE of 89,412
Dep of 5,588
RR of 27,000
Now I understand the excess depreciation is 1,588 so I
Dr RR 1,588
Where does the cr go?
entries -
DR Asset 27k
CR OCI 27k
----------------------
DR OCI 27K
CR SPLOCI 27K
-----------------------------
DR depn 5588
CR SPLOCI 5588
---------
And charge excess depn from reserves and surplus
---------------------------------------------------------------------------------------
we can either transfer the 27000 in SPL (OCI) or in revelation reserve .sir has credited SPLOCI by 27000 and also is showing revaluation reserve in SFP by 27000 less 1588.This is not possible
DR Asset 17000
DR acc deptn 12000
CR rev surplus 27000
how do we post OCI
please ignore the additional depreciation element for now.
Help v much appreciated.
Thank you for the lecture video above.
Sir, if assuming there are entries such as excess depreciation or disposal of a revalued asset, where we Credit our Retained earnings, are we supposed to show the similar resulting effects in our P/L as well?
Thanks,
Mehr.
This asset is effectively treated as a new asset, isn't? If we reserve the accumulated dep are not understated accumulated depreciation?
Any new depreciation is then recorded in the usual fashion using the depreciation expense account and the accumulated depreciation account.
Thanks
The gain is recorded in the revaluation reserve, which is part of equity on the statement of financial position. All the company's gains/losses are then disclosed in the statement of profit and loss and other comprehensive income, so as the gain has not been realised it is shown in OCI. There is no additional journal entry for this, it is just purely a matter of presentation.
Thanks
I just read your comments which has answered my question. I'm very grateful for this clarification as I kept thinking what was the double entry for the OCI? if the revaluation gain is recognised in the Revaluation reserve (in the SoFP).
sorry I think I asked this question already but can't find it in the comment history.
I am getting hung up the designated account for revaluation gain: are we posting to the revaluation reserve in SOFP (Equity - Other Income) or OCI?
I particularly mean the following JE:
DB - Assets SOFP - increase by diff. Reval. and actual cost
DB - Accumm. depr SOFP - remove depr. to date
CR - Revaluation Reserve - Equity or OCI?
DB - Revaluation Reserve - Equity or OCI?
CR - Retained Earnings
Also instructed by IAS1 - Disclose Revaluation Gain in OCI - is this a 'second' step and the initial JE posts to SOFP - Other Income?
Hope my question makes sense!
Thanks,
Anja
Initially we need to Debit the PPE and Acc. Depn accounts by 15,000 and 12,000, respectively, and credit the Revaluation Reserve account (not the SFP directly) by 27,000. Then the increase in depreciation of 1,588 (5,588-4,000) will need to be debited to the revaluation reserve account (not the SFP directly) and credited to the SPLOCI (under the OCI section).
As the Revaluation Reserve is an Equity element therefore the ending account balance of 25,412 (Cr 27,000 - Dr 1,588) at the year end (31-12-15) will be shown will be shown as the revaluation reserve under the Equity section in the SFP.
Hope this helps!