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Disposal of a revalued asset

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Disposal of a revalued asset

  • This topic has 17 replies, 6 voices, and was last updated 4 years ago by John Moffat.
Viewing 18 posts - 1 through 18 (of 18 total)
  • Author
    Posts
  • November 15, 2015 at 3:32 pm #282568
    Mandip
    Member
    • Topics: 19
    • Replies: 15
    • ☆

    Hi,

    I am looking for confirmation to what happens to the Revaluation account when an asset is sold. I thought the balance is cleared to zero with the double entry going to the Disposal account. Can you please confirm?

    Also the below question is in a revision pack and i believe the answer they have provided is wrong. The questions is:

    “Company purchased an asset on 01/01/03 at a cost of £1,000,000.00. It is depreciated over 50 years by the straight line method, with proportionate charge for depreciation in the year of acquisition and year of disposal. at 31/12/04 the asset was re-valued to £1,200,000.00. There was no change in the useful life.

    The asset was sold on 30/06/05 for £1,195,000. What profit on disposal of asset be reported in the statement of profit or loss for the year ended 31/12/05”

    I think the answer should be £247,500

    November 15, 2015 at 5:56 pm #282603
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    In the Statement of profit or loss itself, the profit on disposal is the difference between the sale proceeds and the carrying value (net book value) based on the revalued amount.

    You are indeed correct that any balance on the revaluation reserve may be removed, but if they do remove it then it is directly to the Retained earnings and not in the Statement of profit or loss. (The transfer to retained earnings (or revenue reserve) will appear in the Statement of changes in equity, not in the SOPL itself.)

    November 15, 2015 at 6:54 pm #282682
    Mandip
    Member
    • Topics: 19
    • Replies: 15
    • ☆

    Thank you for your reply John.

    From your first paragraph then the answer to the question should be £247,500 and not £7,500 as stated in the book. Can you please confirm?

    Thanks

    November 15, 2015 at 7:02 pm #282684
    Mandip
    Member
    • Topics: 19
    • Replies: 15
    • ☆

    Ignore me, the carrying value of the revalued asset is £1,187,500, sold for £1,195,000 therefore profit of £7,500.00

    Sorry to have wasted your time

    November 15, 2015 at 7:49 pm #282694
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    It is no problem, and you are welcome 🙂

    November 16, 2015 at 5:55 pm #283077
    shazzy30
    Member
    • Topics: 17
    • Replies: 45
    • ☆☆

    hi

    I’m really sorry to disturb you..but please may you explain to me how the carrying value of the revalued asset is £1,187,500?

    November 16, 2015 at 8:46 pm #283141
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    It is the revalued amount less 6 months deprecation up to the date of the sale.

    November 17, 2015 at 7:39 am #283220
    shazzy30
    Member
    • Topics: 17
    • Replies: 45
    • ☆☆

    okay..tnak you so much 😀

    November 17, 2015 at 7:40 am #283222
    shazzy30
    Member
    • Topics: 17
    • Replies: 45
    • ☆☆

    okay..thank you so much 😀

    November 17, 2015 at 8:17 am #283242
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    You are welcome (twice 🙂 ) 🙂

    December 4, 2019 at 3:30 pm #554918
    amarshad
    Member
    • Topics: 0
    • Replies: 2
    • ☆

    Guys one this after disposal, how is it that the revaluation reserve is transferred to Retained earnings, what would be the offset in the assets side. Cash will match the profit on the sale and the removal of asset l. But the reserve transferred to Retained Earnings will amount extra on the equity and liability

    December 5, 2019 at 8:58 am #555027
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    Why should there be an offset in the asset side????

    Retained earnings and the revaluation reserve are both reserves and are both owing to the shareholders. Transferring the revaluation reserve to retained earnings does not change the total reserves but simply mean that they are all now distributable as dividends.

    Have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.

    December 16, 2019 at 8:50 am #555983
    amarshad
    Member
    • Topics: 0
    • Replies: 2
    • ☆

    Hey John,

    I meant if we have sold the asset and removed it, then what will match the revaluation surplus is the cash we recieved and the gain. It still wouldnt match whatever is left in the surplus

    December 16, 2019 at 2:45 pm #556057
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    The revaluation surplus does not arise because of having sold the asset, it arose when the asset was previously revalued.

    When the asset is sold, the profit on sale is the difference between the cash received and the carrying value.

    Again, have you watched my free lectures on non-current assets?

    October 12, 2020 at 5:04 pm #588707
    khankamran
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    What does mean when accumulated deprition debit ans revaluation sirplus credit?

    October 13, 2020 at 8:49 am #588728
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    When we revalue we need to remove the existing depreciation and so we debit the accumulated depreciation and credit the revaluation account.

    I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.

    December 23, 2020 at 9:04 pm #600774
    ameeraasad5
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Dear lecturer Moffat,
    I just wanted to thank you for your efforts, I had some same questions and you answered them all.
    Respect,
    Ameera.

    December 24, 2020 at 7:58 am #600787
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    Thank you for your comment 🙂

  • Author
    Posts
Viewing 18 posts - 1 through 18 (of 18 total)
  • The topic ‘Disposal of a revalued asset’ is closed to new replies.

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