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Hello,
My question is related to the double entry of the revaluation of a TNCA. In the course notes chapter 23 (IAS 16) is shown like this:
Dr Acc depr until 0
Dr PPE
Cr Revaluation reserveI was wondering will the following be wrong and why:
Dr Acc depr until 0
Cr PPEDr PPE
Cr Revaluation reserve
if the revaluation shows amount less that the carrying one then these will be reversed:
Dr Revaluation res
Cr PPEThank you.
Why would you want to reduce the PPE (credit PPE in your first journal entry) and then increase it by the full revaluation?
What’s the problem with:
debiting the accumulated depreciation (to zero)
debiting the PPE with the remainder of the revaluation that has not been debited to accumulated depreciation, and
crediting the revaluation reserve with the full amount of the revaluation amount
Your method works but I feel that I would have to describe it as unconventional!
Hello again and thank you for the prompt answer. I was asking this, because I was doing a practice question (No. 15 Deaing BPP practice and revision kit) which I couldn’t fully understand. It required an extract to be prepared from the S of FP for 3 years with an upgrade to the PPE in the second year for 200. The answer showed extracts from 3 years as such:
——————–30.09.2006———30.09.2007———–30.09.2008
PPE—————-920——————-920———————-670
Acc dep———-(180)——————(450)——————-(119)
Carrying V——–740——————-470———————551Basically what was done as I see it for the upgrade:
Dr acc dep 450
Cr PPE 450Dr PPE 200
Cr Rev Res 200119 is the depreciation charged on the carrying value of 670 for the last year.
Please correct me if I am wrong, because after today’s work day I feel exhausted and I do not trust my F7 skills now 🙂
P.S. I would like to thank you for the awesome work that you do here for all of us and to say that I have successfully passed F 4,5,6 with mainly using this website.
Thank you for those last comments 🙂
Now, the PPE problem!
Your figures make absolutely no sense at all to me! If anything, the figures you give suggest a decrease in the valuation. Was the asset bought part way through 2006? Is there any estimated residual value? What is the depreciation rate? At what date was the revaluation and what is the company’s year end date?
All these I need if I am to be able to answer your question (sorry to be a pain!)
Hi
No problem at all.
30 september is the company’s year end01.10.2005 Machine aquired for £920
Estimated life in hours – 6000
total hours used 30.09.2006 – 1200
total hours used 30.09.2007 – 1800
total hours used 30.09.2008 – 850Residual value £20
30.09.2006 Depreciated with (180) – this is calculated using hours used, which I am ok with. [(920 – 20) x 1200/6000]
30.09.2007 Depreciated with (270) – again using the same method of depreciation and the result is Acc depr (450) as per the extract from S of FP in the answers. [(920 -20) x 1800/6000]
01.10.2007 Upgrade at a cost of £200. The upgrade increased the estimated remaining life of the machine at 1.10.2007 to 4500 hours and the residual value was revised to $40.
Valuation – This is how it is shown:
Original cost ——————— 920
Depreciation to 30.09.2007 – (450)
Carrying amount ————— 470
Upgrade ————————– 200
Valuation ————————– 67030.09.2008 This is where I get confused with the depreciation and the extract. The answer shows [(670 – 40) x 850/4500], which is 119 as per the last years extracts.
I see the logic in all this, but I cannot link it to the double entry.
Hopefully this is enough info regarding the question.
Thanks.
Well, you’ve done all the hard work. All you now need is the double entry! For what? The revaluation? There is NO revaluation! It did have a carrying value of $470 and we spent $200 improving it so now it has a carrying value of $670!
We DO reassess useful life and we DO reassess residual value, but we don’t revalue the asset
Double entry for the improvement, debit asset, credit cash 200
Do you need more? Or is that ok now?
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