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Hi there, I’m a bit confused on the following;
Retained earnings in the SOFP is a credit account? so when excess depreciation is transferred and Dr Revaluation Surplus and Cr Retained earnings, isn’t this increasing Retained Earnings?
If depreciation is an expense wouldn’t it reduce profit?thank you
Amy
In future you must ask in the Ask the Tutor Forum is you want me to answer. This forum is for students to help each other.
Depreciation is an expense and so the total depreciation amount will have been charged to the SOPL and will have reduced profit.
The transfer is a separate issue, Both the retained earnings and the revaluation surplus are amounts owing to the shareholders. All the transfer is doing is making some of the revaluation surplus distributable as dividends (the revaluation surplus is a capital reserve and cannot be distributed as dividend).
This is all explained in my free lectures.
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