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The revaluation surplus is realized when the asset is either disposal of PPE or consumption of PPE. Consumption of PPE is it means the PPE is fully utilized without any life-time remains?
However, I sometimes see some examples make this entry when the asset not be disposed and not fully utilized. The asset still continues to revaluation. Why this situation happens, or I got misunderstanding on this concept.
Please help me, thank you.
“I sometimes see some examples make this entry …”
Which entry? I need more from you before I can answer – basically I have no idea what you are talking about!
I have seen some notes mentioned that the revaluation surplus is realized when the asset is either disposal of PPE or through consumption of PPE, part of the revaluation reserve is being realized. What is the meaning of part of the revaluation reserve is being realized?
Also, I saw some questions realized the revaluation surplus when the new depreciation more than the old depreciation? Why should we realize the revaluation surplus when this situation happens?
I am talking about the revaluation surplus transfer to retained earnings (the revaluation surplus is realized)
Dr. revaluation reserve
Cr. Retained earningsPlease help. Thank you
If we have revalued an asset in the past and credited revaluation reserve with the amount by which we have increased the carrying value of that asset, clearly that revaluation “gain” is not realised … and it won’t be realised until we have either used up that asset in full or we have sold it
But each year subsequent to the revaluation (say there are 5 more years left after we revalue) we have used 1/5 of that revalued asset and so we have realised 1/5 of the revaluation gain
If we were to sell within that 5 year period, then we would have realised the while of the revaluation gain
Finally, after a few years of depreciating the revalued asset, it COULD be the case that the carrying value of that asset is now lower than the figure that would have been the carrying value if we had not revalued
For his situation to arise it would mean that we had reassessed the estimated useful life at the time of the revaluation so instead of having an asset with a carrying value of 100 and a useful life of 10 years, we now have that same asset with a carrying value of 150 and a useful life of 6 years
After 1 year, we are comparing 90 with 125
After 2 years, we are looking at 80 compared with 100
After 3 years, it’s a comparison of 70 with 75
Then, after 4 years, the figures are 60 compared with 50And that’s when the depreciation on the revalued asset exceeds the figure that would have been calculated if the revaluation had not taken place … and that’s the time when we can say that the revaluation gain has been realised
OK?
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