Example 2 Revaluation decrease — OpenTuition Forums

AAnna7y ago

Hello In example 2 on Revaluation decrease when the impairement takes place (on 31.12.2015) we have the following balances: PPE dt 14 000 000 Acc.depr. Ct 1 750 000 (Depr. exp. Dt 1 750 000) Reval. reserve/surplus ct 3 850 000 Retained earn. Ct 550 000 Is that correct? As the asset value falls to 8 000 000, we credit PPE acc with $6 000 000 but where should debits go? Should we clear Revaluation surplus and Retained earnings accounts to have zero balances? Should we post dt $2 150 000 as an expense in SPL? Should a credit balance on Accumulated depreciation acc of 1750 000 stay there ? Could you please speciy which accounts and with what amounts will be affected when the impairement takes place on 31.12.2015? Thank you!

PP2-D2Tutor7y ago#1

Hi, The revaluation surplus is cleared first as you say, and the extra amount then take through profit or loss. So your entries would be correct. There is no specific account that should be used to reduce the value of the PPE but it is usually taken to the accumulated depreciation, so this is where you would likely see the asset reduced. Thanks

AAnna7y ago#2

Hi, So, would the following journal be correct? Accum. Depr. (SFP) CT 4 250 RE (SFP) DT 550 Rev. Surpl. (SFP) DT 3850 Expense (SPL) DT 400 (I guess I've made a mistake in my previous question writting 2 150 as an expense ) But actually the debits don't equal credits in this entry, please advise. And on the face of Statement of finanacial position would the 8 000 (= 14 000 – 4250 – 1750) be recognised as a carrying value of the asset? Thank you!

PP2-D2Tutor7y ago#3

Hi, So the journal entry would be as follows: DR Revaln. Reserve 3,850 DR SPL 400 CR Acc. Depn. 4,250 This would then show the carrying value of the asset at 8,000. Thanks