Revaluation and disposal — OpenTuition Forums

Mmansoor11y ago

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 --------- 56000 this 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 ---------- 35,000 i 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 entry the 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?

MikeLittleTutor11y ago#1

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

Mmansoor11y ago#2

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 50,000 3. at disposal here i am at a loss thanks for ur time

MikeLittleTutor11y ago#3

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 56,000 Dr Cash 60,000 Cr Disposal account 60,000 Dr Disposal account 4,000 Cr Profit or Loss 4,000 Release the revaluation reserve Dr Revaluation reserve 35,000 Cr Retained earnings 35,000 Is that better?