Revaluation

It’s to release the “extra” depreciation calculated on the revaluation increase. As each year goes by, that increased amount is realised so an appropriate amount (the depreciation on the revaluation surplus) is released to retained earnings

Is that ok or do you need further explanation?

If you revalue an asset with a 10 year remaining life, and you revalue by $10,000, the entry is simple: Dr asset and Cr revaluation reserve. From then on, depreciation on that asset is charged to profit or loss / income statement based on the increased value.

But why should this year’s profits “suffer” 10,000 additional depreciation just because you have revalued the asset.

So, although not a requirement, it is recommended that an annual transfer be made between revaluation reserve to retained earnings to compensate the retained earnings figure by that excess amount of depreciation.

So Dr revaluation reserve and Cr retained earnings with $10,000 per annum for the next 10 years

Better?

$1,000 – I was thinking big. My apologies and thank you cuteleo for spotting that. That error made a whole nonsense of my post!

🙂