Investment property transfer question

Nnandrou11y ago

Hi, Could you help with my understanding of revaluation of a property asset that has been transferred to investment property please? My understanding is I can use F.V. revaluation under IAS 16 to account for the revalued asset. E.g. originally, property worth $15k with a useful life of 15 years, depreciated after 2 years to $13k, but at end of year 2, revalued to $20k. Therefore asset debited by $7k in SOFP, credit against depreciation charge in income statement of $2k and remaining $5k is credited in revaluation surplus in O.C.I. However, my study text gives me the following example: Cost of property (used as HQ for business) $250k in 1/1/X0 with 50 years U.E.L. Change in use @ 30/6/X9 – transfer to investment property F.V. @ 31/12/X9 is $350k Therefore: Cost: $250k Dep’n: ($47.5k) [9.5yrs * $250k] Carry amt: $202.5k as at 30/6/X9 Reval surpl: $147.5k F.V.: $350k as at 31/12/X9 Why does the full amount of $147.5k go to the revaluation surplus and not $47.5 against the depreciation charge and $100k to the revaluation surplus? What have I missed? Many thanks.

MikeLittleTutor11y ago#1

Your original proposal is incorrect! Go back to your own example: You say Dr Asset 7m Cr Depreciation 2m and Cr Revaluation 5m The correct entry should be: Dr Asset Account 5m Dr Accumulated Depreciation Account 2m Cr Revaluation Reserve 7m Applying the same to your text book example: Dr Asset Account 100m Dr Accumulated Depreciation Account 47.5m Cr Revaluation Reserve 147.5m Ok?

Nnandrou11y ago#2

The original example I gave also comes from my study text. Yes, I agree, the SOFP should be technically split and debited as you described: Dr Asset Account 5m Dr Accumulated Depreciation Account 2m The corresponding credit entries were shown in the study text as: Cr P&L 2m Cr Revaluation Reserve 5m So my question in the transfer to investment property example, when you debit the SOFP entries as you described, why are there no corresponding credits as follows: Cr P&L 47.5m Cr Revaluation Reserve 100m Where the credit to the P&L is a reversal of the 47.5m which had been previously booked as a depreciation expense in the P&L. Just want to verify why in this instance the example doesn't reverse the depreciation expense in the P&L, but puts it all through the reval. reserve?

MikeLittleTutor11y ago#3

I get the impression that you are not telling me the full question! Whatever, unless there is some particular reason for it, I cannot accept the idea of "reversing this year's depreciation expense" I'm sorry but, in my mind, that is simply incorrect! But it may be that the question gives more information that could explain such a weird entry!