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Hello,
Please could you tell me why in the ACCA answers there is a transfer of 500 from the revaluation reserve to the retained earnings? It doesn’t seem to be calculated anywhere in the answers?
Thanks,
Dan
Hi
This is an example of “good practice” Where we have revalued an asset upwards, then we need to charge depreciation on the increased amount. Now, ask yourself, “Why should the years’ profit figures fall by an inflated depreciation charge ( based on the revalued amount ) when we could never have bothered revaluing and the depreciation would have been on original cost?”
So, the annual excess depreciation calculated on the revaluation amount is sensibly “released” from the revaluation reserve each year Debit Revaluation Reserve and Credit Retained Earnings.
If you like, it’s compensating the retained earnings which would have been that much improved if we hadn’t revalued
OK?
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