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Mr Moffat good morning! tell me please, how is the excess on depreciation is transferred from Revalutaion Reserves to Retained earnings and why. i learnt that but want to understand why this practice exists.
You debit revaluation reserve and credit retained earnings.
The revaluation reserve only exists because it is not a ‘real’ profit and cannot be distributed. The excess depreciation was reducing the actual profit – since it occurs due to the revaluation it is only fair to move it back to retained earnings so that it can be distributed.
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