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Hi!
I am doing 73 Preparation question: Dickson on Kit to Jun 2015
And I do not understand the caculation of tranfer to retained earnings (57-49)
Could you help me to explain it !Hi Phuong
I don’t have any text books to hand 🙁 so what follows is a shot in the dark
If there had been a revaluation of some TNCA that had a carrying value of $100,000 by, say, $40,000 and the asset had a remaining useful life of 5 years, then through the statement of profit or loss the depreciation this year would be $28,000
But if we hadn’t revalued, that depreciation would only have been $20,000
Now, why should retained earnings “suffer” that extra depreciation of $8,000 just because we want to show our assets at a fair value?
So (and this is not a requirement – it’s an option that a company’s board of directors can choose) the company can make a transfer from Revaluation Reserve to Retained Earnings effectively to compensate the retained earnings for having suffered that additional depreciation and the value of that transfer? Why, it’s $8,000 – that’s the revaluation amount divided by the estimated remaining useful life
Does that hit the nail on the head or is my guess way out?
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