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Hello Tutor,
Could you kindly explain the last statement to me, please?
“The depreciation charge on the revalued asset will be different to the depreciation that would have been charged based on the historical cost of the asset. As a result of this, IAS 16 permits a transfer to be made of an amount equal to the excess depreciation from the revaluation reserve to retained earnings.”
Thank you.
In theory you met this in FR, but don’t worry.
EG
Asset has CA of 100 and FV of 500. Life is 10 years.
If asset is revalued:
Dr PPE Cr RR 400
Then depreciation will be
Dr P&L Cr PPE 50 (instead of 10)
Optional transfer
DR RR CR RE 40 (being 50 minus 10)
If it cheers you up, this is much more likely to be examined in FR
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