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Hi Mr John….Some questions keep asking the excess depreciation on revaluation from the revaluation surplus to retained earnings….
I can’t get it….
For example , if we revalue the building for more value than it was …Well then,First thing to do is debit cost account of building and put this value in revaluation surplus on credit side ..Second thing to do is balance the acc depreciation by debating and putting this value on revaluation surplus on credit side…So final thing is adding two figures in revaluation surplus and transforming it into Profit and loss…So we start from the beginning with new cost of building and new depreciation charge …..
Is that true ? I can’t see any excessive depreciation here…
Thank youThe ‘excess depreciation’ is the difference between the new depreciation (based on the revalued amount) and the previous depreciation (based on the original cost).
Why do we need this term (excess depreciation).
What benefits do we get if our building’s value increased over original cost after some period of time while we depreciating…What difference does it make if this thing happens?If the business wants to then they can transfer the amount of the excess depreciation each year from the revaluation reserve to retained earnings (which affects the amount they are allowed to pay as dividend).
Hi Mr John …Let’s say we have non-asset cost 750,000 and useful life 25 years after 5 years Co revalues its non asset at 1000,000..Co policy states excess depreciation can be transferred to retained earnings…So Revaluation surplus 400,000 and asset will be 1000,000.Where do these figures go? SOFP or P and L ? Should we increase the capital of the owner by 400,000 now? thank you…
They both appear on the SOFP.
The asset appears under ‘non-current assets’ at its revalued amount.
The revaluation surplus (or revaluation reserve) appears under ‘equity’ as owing to the shareholders, but must appear on a separate line because it is a non-distributable reserve.
Please watch the free lecture on Limited Companies.
Sir i want to know the whole theory of transfer of excess depreciation to retain earning.. it sounds time consuming but i am totally confuse should we need to reduce the excess depreciation charge from revaluation surplus ?? In the other incomprehensive income?? If so what to do next with reduced amout??
Say we bought a building 10000$ Amd the policy of the company to deprciate it in straight line methot for 10 years .. after 5 years it is to be ravlued to 20000$ and company has the policy to transfer excess of depreciation.. what to do now amd where the entry should go??In the SOPL we charge depreciation based on the revalued amount.
Separately there is a transfer from revaluation reserve to retained earnings of the excess depreciation. So revaluation reserve reduces and retained earnings increases. The total of the reserves stays the same, but it means that more of them are distributable (because retained earnings are a revenue reserve and revaluation reserve is a capital reserve). This transfer does not affect the SOPL but will be shown in the statement of changes in equity.
Hi, just going through CIMA F1 and I can see a question which online has a wrong answer I believe.. can you help please? I came to the answer of P/L DR 90,000 Total Impairment 140,000.
CDE purchased a building on 1 January 20X1 at a cost of $450,000. At that date, the building had an estimated useful life of fifty years, with $50,000 estimated residual value.
At 31 December 20X5, the building was revalued to $500,000, with no change in its total estimated useful life or residual value. At 31 December 20X6 it was established that the building contained some construction materials which are now known to be a danger to public health and, at that date, its recoverable amount was revised to $350,000. CDE does not make a transfer of ‘excess depreciation’ within equity.
In the financial statements for the year ended 31 December 20X6, what was the total impairment, and how much of this was this charged as an expense in the statement of profit or loss?
The CIMA answer seems to show the below answer..
31 Dec 20X5
(500,000 – (450,000 – $50,000)/50 x 45)) 140,000
1 Jan 20X6 revalued amount 500,000
Depreciation 20X6 ($450,000 / 45) (10,000)
31 Dec 20X6 carrying amount 490,000
31 Decn 20X6 recoverable amount 350,000
Total impairment 140,000Allocated first against revaluation surplus (140,000) (140,000)
Remainder charged as P&L expense Nil Nil
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