hi, i dont know if ill sound dumb bbut hhow did you get (4)?
J
Javen·
This 4 is was was supposed to be depreciated if there was no revaluation. As there is a revaluation the dep change based on the new FV.
A
AnnaSupporter·
Dear Tutor,
Can I ask why we are accounting for reserve transfer (1.6)? The asset was revaluated (new FV) , new deprecation was calculated, and I do not understand why we compared the old depreciation(4) with the new one (5.6) and created the transfer reserve. Feels like we are artificially pumping up RE. I understand this was what the accounting standard said, but I do not understand the logic behind it.
J
JackSupporter·
Hi szogun , regarding your query, upon revaluation there is a 27m gain which is an unrecognised gain and therefore is accounted for as a gain in the revaluation reserve instead if the profit and loss, in the year ending 2015 the difference between the depreciation of the newly revalued asset and its depreciation on historic cost would therefore be a surplus, an additional depreciation charge that what was projected if you will, which needs to be reduced in the revaluation surplus and transfered to the retained earnings total.
If you remember in prior learning depreciation is a non- cash item and is added back to show the accounting profit, we add back the excess depreciation to show the correct profit figure that will be found in the profit and loss account.
Each year there will be the same calculation to adjust the revaluation reserve and in the event we sell that asset all of the revaluation gains will be transferred over to the retained earnings to show all of the realised profits in the retained earnings balance.
S
Seno·
Hello Mr Barlow,
I was wondering why 1.6 m is added to the RE instead of subtracting it. Isn't it the excess depreciation due to increase in reavaluation, and by that logic shouldn't it reduce RE?
Many thanks
D
darshan·
HELLO ,
The rationale behind that treatment is to realise the revaluation surplus over the assets useful life
T
Tan·
Dear Open Tuition,
Why isn't the accum depr is 12m+5.6m = 17.6m
So the carrying value of the asset as at 31.12.2015 will be 95m-17.6m=7.4m instead of 95m-5.6m=89.4m
Why is the 12m accum depr ignored after revaluation?
Besides, I do not understand the comparison of 4m (old depr) and 5.6m (new depr) to SOE.....
N
no1lover·
When we are revaluing we have to take the carrying value of the asset (that is 80M less 12M Acc Depn=68M) and revalue it up to 68M. So the double entry for this will be DR Acc Depn 12M (to reverse it on other words), DR Cost [95M (new value)-80M(old value)] with 15M and the credit will go to the Other Comprehensive Income (OCI) section in the SOPLOCI of 27M. I hope this gives you more clarity. Then we take the new value and depreciate.
N
Nojeem·
Is a credit to OCI,an automatic credit to OCE?
M
Mohammed·
How would the answer be different for example 1 Panama if the asset was revalued at 31st December 2015 instead OF 31st January 2015?
Would we calculate depreciation for 2015 at £4m?
Referring to Page 44 SBR lecture notes example 1 revaluation increase
T
Trang·
Sir,
In the SOFP, Equity Section should be included "retained earning" with 1.6, right?
Thanks!
L
Luqman·
I think the tutor mentioned we use SOCE
4
48percent·
I did not understand anything from 13.11 till the end of the video
what did you do with excess depreciation
and what is the logic behind transferring the excess to SOCIE ?
L
lpx454·
Hai can you send me the little bit explinatory notes on PPE if possible
K
Kartik·
Cap bought a building on 1 January 20X1. The purchase price was $2.9m, associated legal fees were $0.1m and general administrative costs allocated to the purchase were $0.2m. Cap also paid sales tax of $0.5m, which was recovered from the tax authorities. The building was attributed a useful economic life of 50 years. It was revalued to $4.6m on 31 December 20X4 and was sold for $5m on 31 December 20X5.
in this question there has been a transfer of 1.84m from OCE TO RETAINED EARNINGS.
should it not be 1.8 m?
please help me
thanks
L
Luqman·
In relation to this question, how is profit on sales of PPE item treated? Is it just recognized as a profit in P&L.
Also, since the revaluation surplus has been realized, will it be transferred permanently to P&L as well?
K
Kartik·
hello,
I have a doubt regarding PPE.
in definition it is written that PPE is used for rental to others.
my question is how to know whether it is a lease or PPE?
P
P2-D2Tutor·
Hi,
If we recognise the asset as a right of use asset under a lease as the lessee then it will be classified as PPE. If we are the lessor and rent it out under an operating lease then we still have the risks and rewards of ownership and so continue to recognise the PPE in our books. The question will make the scenario clear in any exam question.
Thanks
K
Kartik·
thanks,
I have a doubt. Should it not be an investment property for the lessor if he rents out an asset under an operating lease.
P
P2-D2Tutor·
The asset is transferred from PPE to IP. Thanks
C
chaithanya1990·
Hello Mr Barlow, I have a question regarding the revaluation increase problem that you solved towards the end of this video.
When we transferred 1.6 million at the end of year 2015 (difference in depreciation: between 4 and 5.6) to revaluation reserve from Other Comprehensive Income, can it also be inferred as appropriating OCI and transferring the same to revaluation reserve over remaining useful life of asset?
Thanks in advance
P
P2-D2Tutor·
Hi,
It is just a transfer of reserves from the revaluation reserve to retained earnings. I can't say that I've heard the terms that you mention above, sorry.
Thanks
V
vinessen·
sir whats the logic behind adding the 1.6 to the RE after deducting it from the 27 in SOCE?
P
P2-D2Tutor·
Hi,
The revaluation reserve is not a distributable reserve and by making the transfer to retained earnings we are increasing retained earnings which is a distributale reserve.
Thanks
S
Savion·
I still have a question, how did we make the transfer from reserve to RE. I saw where you removed the 1.6 from reval reserve but not add the 1.6 to the RE.
We already have a 5.6 being removed from the total asset figure when calculating the NBV at the end of the year.
U
Udeshya·
Hello Sir, can you please give a example of this statement- "The accumulated depreciation at the date of the revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses."
Can I ask why we are accounting for reserve transfer (1.6)? The asset was revaluated (new FV) , new deprecation was calculated, and I do not understand why we compared the old depreciation(4) with the new one (5.6) and created the transfer reserve. Feels like we are artificially pumping up RE. I understand this was what the accounting standard said, but I do not understand the logic behind it.
If you remember in prior learning depreciation is a non- cash item and is added back to show the accounting profit, we add back the excess depreciation to show the correct profit figure that will be found in the profit and loss account.
Each year there will be the same calculation to adjust the revaluation reserve and in the event we sell that asset all of the revaluation gains will be transferred over to the retained earnings to show all of the realised profits in the retained earnings balance.
I was wondering why 1.6 m is added to the RE instead of subtracting it. Isn't it the excess depreciation due to increase in reavaluation, and by that logic shouldn't it reduce RE?
Many thanks
The rationale behind that treatment is to realise the revaluation surplus over the assets useful life
Why isn't the accum depr is 12m+5.6m = 17.6m
So the carrying value of the asset as at 31.12.2015 will be 95m-17.6m=7.4m instead of 95m-5.6m=89.4m
Why is the 12m accum depr ignored after revaluation?
Besides, I do not understand the comparison of 4m (old depr) and 5.6m (new depr) to SOE.....
Would we calculate depreciation for 2015 at £4m?
Referring to Page 44 SBR lecture notes example 1 revaluation increase
In the SOFP, Equity Section should be included "retained earning" with 1.6, right?
Thanks!
what did you do with excess depreciation
and what is the logic behind transferring the excess to SOCIE ?
in this question there has been a transfer of 1.84m from OCE TO RETAINED EARNINGS.
should it not be 1.8 m?
please help me
thanks
Also, since the revaluation surplus has been realized, will it be transferred permanently to P&L as well?
I have a doubt regarding PPE.
in definition it is written that PPE is used for rental to others.
my question is how to know whether it is a lease or PPE?
If we recognise the asset as a right of use asset under a lease as the lessee then it will be classified as PPE. If we are the lessor and rent it out under an operating lease then we still have the risks and rewards of ownership and so continue to recognise the PPE in our books. The question will make the scenario clear in any exam question.
Thanks
I have a doubt. Should it not be an investment property for the lessor if he rents out an asset under an operating lease.
When we transferred 1.6 million at the end of year 2015 (difference in depreciation: between 4 and 5.6) to revaluation reserve from Other Comprehensive Income, can it also be inferred as appropriating OCI and transferring the same to revaluation reserve over remaining useful life of asset?
Thanks in advance
It is just a transfer of reserves from the revaluation reserve to retained earnings. I can't say that I've heard the terms that you mention above, sorry.
Thanks
The revaluation reserve is not a distributable reserve and by making the transfer to retained earnings we are increasing retained earnings which is a distributale reserve.
Thanks
We already have a 5.6 being removed from the total asset figure when calculating the NBV at the end of the year.