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Hi Mike
following is an extract of a bpp question. my question comes below this extract.
Book value at revaluation .. 30000
revaluation ……………………. 50000
———-
80000
Depreciation
(80000/10)x3 …………………. 24000
———
56000this asset was sold for 60,000 in X9. (Pl. note there is no other info given as this is part of a problem where we are supposed to prepare the Statement of Changes in Equity)
the value of transfer from Reval surplus to Retained earning is:
Reval Amount: …………………………………………. 50,000
less amount transferred to Retained Earnings: 15,000
———-
35,000i want to translate this in actual double entries.
and i want the entries as follows:
1. account balances before valuation
2. entries made at valuation
3. disposal entrythe problem i am having is that i am not given the cost or accum. dep. of the asset at revaluation, instead only the CV.
can u guide me please?
Hi, I hope so.
I imagine that the matter causing you the problem is the $15,000 transfer from revaluation reserve to retained earnings – am I right?
I know that you’re happy with the initial creation of the revaluation reserve – it’s simply the uplift from carrying value of $30,000 to $80,000
That $50,000 increase becomes important! If we hadn’t revalued, depreciation would have been 10% of $30,000 = $3,000
But, following revaluation, we are now depreciating at 10% of $80,000 = $8,000
Why should the retained earnings figure suffer by this additional $5,000 excess depreciation?
So, each year, although it’s not a requirement in any IAS / IFRS, it is recommended that there shall be an annual transfer from revaluation reserve to retained earnings, through the statement of changes in equity, amounting to this “excess” depreciation of $5,000 per annum
This has taken place for three years, hence $15,000
Now, the big question! Does that do it for you or do you really want double entries for “before valuation, at valuation and at disposal”?
Let me know if that’s what you want and I’ll do it for you
thank u! …. and i do get the 15,000. but its the entries i want because those are first principles and my understanding will be much better.
if i had been given the cost instead of the cv… i wd have given it a shot and posted the entries for u to check.
better yet, please just give a hint on how to begin with cv…ie
1. just before revaluation:
CV balance is 30,000 dr
2. at revaluation:
dr CV a/c 50,000
cr reval surplus 50,0003. at disposal
here i am at a loss
thanks for ur time
Ok, no worries!
On revaluation we have debited TNCA $50,000 and credited revaluation reserve $50,000
and then we have depreciated by three years at $8,000 per annum = $24,000 so carrying value is now $56,000 and revaluation reserve is $35,000
and we now sell for $60,000
Dr Disposal account 56,000
Cr TNCA 56,000Dr Cash 60,000
Cr Disposal account 60,000
Dr Disposal account 4,000
Cr Profit or Loss 4,000Release the revaluation reserve
Dr Revaluation reserve 35,000
Cr Retained earnings 35,000Is that better?
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