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Dear Mike,
As per notes:
• accumulated depreciation at the revaluation date should either be restated proportionately, for example if indexing is used, or …
• … eliminated in accounting for the revaluation.1 What exactly do you mean by “if indexing is used”? I will appreciate if you could explain me the meaning of it with any suitable e.g.
2 “eliminated in accounting for the revaluation” what does this mean?
3 When we calculated accumulated depreciation after revaluation that will be based on the new carrying value right?
Also, PPE’s market value is determined by appraisal. What do you mean by appraisal in this context?
If the revaluation of the asset is based on an underlying index – so, for example, the base idex has risen over the last 12 months from 1100 to 1210 – an increase of 10% – then the asset debit will increase by 10% but so also will the accumulated depreciation
The more ‘normal’ way of accounting for a revaluation is to credit revaluation reserve by the amount of the increase in value. But where’s the debit? An instinctive answer would be ‘to the asset account’
But the correct answer would be ‘to the accumulated depreciation account until that is reduced to zero and, if there is still more revaluation to debit, only then will the remainder be debited to the asset account
An appraisal is an assessment. A considered estimate. An evaluation of the worth of the PPE
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