- This topic has 1 reply, 2 voices, and was last updated 5 years ago by tayyabom.
August 3, 2017 at 2:39 am #400091royalringo
- Topics: 24
- Replies: 5
Hi everyone, I have a question on IAS 16 PPE Revaluation Model, regarding the depreciation.
If the PPE been revalued up to an amount, the revaluation surplus will increase the annual depreciation charges, so we are given option to transfer the excess depreciation from Revaluation Reserve to Retained Earnings. However, If the PPE be revalued down to an amount, do we need to adjust for any depreciation on the REVALUATION LOSS in SOPL for the subsequent years?
Here is an example of question:
Carrying Value on 2016: $9000
Revalued Amount on 2016: $8000
Revalued Amount on 2017: $10000
Depreciation & Expected Useful Life: Straight Line basis for 10 years
For 2016, we Dr SOPL and Cr PPE by $1000 due to revaluation loss, correct?
For 2017, there is a revaluation gain of $2000. However we need to Credit the previous revaluation loss in SOPL before we can Credit Revaluation Surplus in SOCI, correct?
But, what is the amount we can Credit from SOPL(Revaluation Loss), do we need to adjust for depreciation?
Please Help and thank you !August 19, 2017 at 7:23 pm #402505tayyabom
- Topics: 0
- Replies: 172
You have to go for historical NBV i.e. had the asset not been revalued what would be the value and then work from there onwards.
Had the asset not been revalued in 2016 it would have a remaining life of 11 years, so
Carrying value in the year 2016: $9,000
Depreciation for the year 2016: 818 ($9,000/11)
HNVB (CV – Dep’n): $7,363 (after 2017 Dep’n, 8,182 / 10)
Asset’s current CV: $10,000 I assume this is after the dep’n
Your balancing figure would come here but since your previous revaluation loss was far less than this gap you could simply take it away.
As per my knowledge, your 2017 journal will look like this:
Dr PPE $2,000
Cr Revaluation Reserve $2,000
Remember Revaluation reserve will ultimately come to OCE and previous year’s recorded loss is lying there so you could then pass a journal to rectify this:
Dr OCE $1,000
Cr RE $1,000
This last journal takes care of extra $1,000 in current year because we are taking it away from the reserve if you find it too complicated you can do something like this in one journal:
Dr PPE $2,000
Cr Revaluation $1,000
Cr Dep’n Charge in SOPL $1,000
that’s how I’ll do it I’m not sure if its right or wrong 🙂
- You must be logged in to reply to this topic.