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PPE – revaluation upwards – ACCA Financial Reporting (FR)

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  2. 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?

  8. 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 ?

  9. 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?

  10. 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?

  11. 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

  13. 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.

  14. 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)?.

  16. 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.

      • 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?

      • 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

      • 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

  19. 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

  20. 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

    • 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.

      Hope this helps!

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