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Hi John. I have another doubt on Excess Depreciation. Why is it necessary to calculate it and also transfer it to retained earnings? I hope you can clarify this
When we revalue an asset, the surplus on revaluation is put to the revaluation reserve because the surplus is not distributable (cannot be paid out as dividend.
After the revaluation the depreciation expense in the SOPL is higher than it would have been if we have not revalued. This makes the profit lower than it would have been and so there is less to go to retained earnings (which is distributable as dividend).
The excess depreciation can then be transferred from the revaluation reserve to retained earnings. It is then distributable (and the amount distributable is then the same as it would have been if we had not revalued).
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