Difference in revaluation of IAS 16 and IAS 40

A revaluation of PPE under IAS 16 is taken through Revaluation Reserve

Dr Asset
Cr Revaluation Reserve

A revaluation under IAS 40 …

… upon the event of a re-classification from PPE to Investment Property, the asset is revalued and accounted for under IAS 16 ie through Revaluation Reserve

Subsequent to that re-classification, any movement in the value of the investment property goes straight through statement of profit or loss

OK?

Dr TNCA 2,000
Cr Cash 2,000

Two years depreciation

Dr Depreciation (PorL) 400 (200 x 2)
Cr Provision for Depreciation 400

Revalue to 2,100 (I’m changing the figure to 2,100 to avoid confusion with the cost of 2,000)

Dr Provision for Depreciation 400
Dr TNCA 100
Cr Revaluation Reserve 500

And this revalued asset, at the end of 2, has a remaining expected useful life of 8 years

Depreciate for year 3 (2,100/8)

Dr Depreciation Account 262.5
Cr Provision for Depreciation 262.5

Carrying value now 2,100 – 262.5 = 1,837.5

Impair down to 800 so reduce by 1,037.5

Dr Revaluation Reserve 500
Dr PorL 537.5
Cr TNCA 1,037.5

OK?

You’re welcome

Without impairment

140 cost in 2002
20 depreciation 2002
120 carrying value at end 2002

20 depreciation 2003
100 carrying value at end 2003

20 depreciation 2004
80 carrying value at end 2004

20 depreciation 2005
60 carrying value before revaluation
50 revaluation
110 carrying value at end 2005

With impairment and revaluation

140 cost in 2002
20 depreciation 2002
120 carrying value at end 2002

20 depreciation 2003
100 carrying value
40 impairment
60 carrying value at end 2003

12 depreciation 2004
48 carrying value at end 2004

12 depreciation 2005
36 carrying value before revaluation
74 revaluation
110 carrying value at end 2005

So we need to reverse the impairment but we can only unimpair the asset back to the level that it would have been if we hadn’t impaired it in 2003

If we hadn’t impaired, the asset would have been carried at 60 as at the end of 2005 so the unimpairment can only take the asset carrying value back up to 60

With the impairment, as at the end of 2005, the carrying value is 36 so we are able to debit the asset with just 24 (60 – 36)

74 revaluation amount will be credited to statement of profit or loss but only up to the amount of 24 – to get the asset carrying value back to what it would have been without impairment

The remainder amount of 50 will be credited to revaluation reserve and the full 74 debited to TNCA

OK?

That’s a great result, well done!