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Hi.
what is the reason for transfer from reserves to retained earnings when recording depreciation of a revalued asset?
thanks in advance
The revaluation surplus is kept as a separate reserve because it is non-distributable (i.e. cannot be paid as dividend).
When we depreciate the revalued amount, then part of the depreciation is because of the revaluation and so that part of it is no longer non-distributable. That is why we transfer it to retained earnings (where it is distributable). It effectively means that the surplus or the profit on revaluation is that much less.
hmmm.. so that means, if an asset is revalued, i actually make money in real terms thru this entry?
No 🙂
Don’t forget that in the Statement of profit or loss you will be charging depreciation on the revalued amount. All that the transfer from revaluation reserve to retained earnings is doing is effectively bring the depreciation charge down to what it would have been had there been no revaluation.
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