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Revaluation and depreciation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Revaluation and depreciation

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
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    Posts
  • November 20, 2015 at 5:36 pm #284205
    Stefano
    Member
    • Topics: 23
    • Replies: 28
    • ☆☆

    Hello,

    Why extra depreciation following a revaluation of an asset can be debitedbto revaluation surplus and credited to retained earnings?

    The additional depreciation is charged to P&L and accumulated depreciation in financial statements already..

    Thanks,
    Stefano

    November 21, 2015 at 2:50 pm #284331
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    So the entry that you’re asking about is ADDING to retained earnings! Think of it as “compensation” for the fact that this year’s profits have been reduced by this extra depreciation expense caused by the revaluation.

    As each year goes by, the profits for those years are being “unfairly” reduced because of that additional depreciation so this (recommended, not required) transfer from revaluation reserve to retained earnings is to get back to a retained earning figure that would have been apparent if we hadn’t revalued.

    Does that make it easier for you?

    November 21, 2015 at 7:21 pm #284389
    Stefano
    Member
    • Topics: 23
    • Replies: 28
    • ☆☆

    That was great thanks! ?

    November 22, 2015 at 11:32 am #284501
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    You’re welcome

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    Posts
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