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Hi
I’m struggling to understand revaluation gain. I’m currently working for a cosmetic manufacturing company and I see revaluation gain on the income statement. I don’t understand it.
You need to watch our free lectures for the full details.
However here is a brief example to explain.
Suppose you have a building which originally cost 100,000 and has accumulated depreciation of 40,000, so a carrying value (net book value) of 60,000.
However you get valuers in and they say that it is actually now worth 200,000.
If you want then you are allowed to revalue it and show it is the SOFP at 200,000 instead of 60,000.That means there is a ‘profit’ of 200,000 – 60,000 = 140,000. This is the revaluation gain. It is show on the SOFP as owing to the shareholders, but it has to be shown as a separate line because it is not a ‘real’ profit (you only have a real profit when the building is actually sold) and so it cannot be paid to shareholders as a dividend.
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