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I am still a bit unsure to when do we need to transfer the revaluation gain value from the surplus account in OCI to revlaution reserve account in equity, do we transfer the amount every the end of the year? or do we do the transfer the amount to the reserve account every time the asset is being revalued? and why do we need to transfer this to equity so that it is being distributed evenly to the shareholders? but there are also transfer the gain to the retained earning option
Hi,
The transfer is optional for a company but is nearly always done. When it is done is usually at the reporting date as a year-end adjustment.
The reason why it is done is because when the asset is revalued the new depreciation charge will be higher than the original one, and so reduce the profit for the year. The reduced profit means that there is then less distributable profits available for the shareholders to be paid as a dividend, which is a bit unfair on then. To make it fairer the transfer from the revaluation surplus to retained earnings is done to ensure that there is no adverse impact on the distributable profits.
Thanks
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