Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Revaluation – excess depriciation question
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- May 15, 2021 at 6:31 pm #620690
Hey team,
Thanks for the great work you are doing!
I am struggling to understand the concept behind having excess depreciation on the revalued asset transferred to retained earning. Why would we want to do this, if we already have revaluation under revaluation reserve?
e.g. example 2 (page 32 on Impairment) The company opts to transfer any excess depreciation on the revalued amount to retained earnings.
Thanks!
May 17, 2021 at 7:56 pm #620874Hi,
Thanks for the kind comments, we try our best for you all!
Once you understand it then it does make sense. Don’t forget that by revaluing the asset you are charging a higher depreciation through profit or loss that reduces the profit and ultimately the retained earnings. The key is that retained earnings are distributable but the revaluation surplus is not as it has not yet been realised. We are therefore reducing the amount that is available to shareholders as a dividend from carrying out the revaluation. To ensue the shareholders are not put at a disadvantage then the reserve transfer is done so that the effect of the additional depreciation on profit or loss is removed.
Thanks
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