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“The $1.2 million balance on the revaluation reserve is transferred from the revaluation reserve to another reserve account (probably retained earnings) but is not reported through the statement of profit or loss for the year.” (Kaplan, FR kit – answer to question 3)
$1.2m is the amount of revaluation gain of the property, after my subtracting the Carrying amount with the Revalued amount (both figures are on the day of revaluation).
What i do not get here, is why this transfer of revaluation reserve (on the Statement of financial position) to Retained earnings (also on the SOFP) is not reported through the Statement of P/L. Could you give me some reasons/journal entries?
Also, other than Retained earnings account, which “reserve” accounts would the balance on the revaluation reserve be transferred to? And what is it for?
Besides, I am also confused when it comes to the answers which include such abbreviations as b/f, c/f, balance figure, or b/d and c/d. It really bugs me as I only understand these by imagining a T-account structure of that account. But, most of the time I have to read the calculations in the answer to “guess” the structure of the T-account, then figure out which items are in the Debit/Credit side, and what’s the bal fig etc. Then, finally get to the same calculations as shown in the Answer.
How can I do the calculations without a T-account? Or, is there a list of full T-accounts I didn’t know about?
Do you recommend any resources which could help me right away fill this knowledge gap of mine?
Many thanks.
Hi,
The best resources will be the class notes and the lectures themselves, where both cover the revaluation of PPE plus the reserve transfer. Have you been through them?
I’d not recommend that you use a T-account for the revaluation as it is too complicated, we have a standard working that we use that is covered in the lecture notes/videos where we use columns for the historic cost, revalued amount and the revaluation surplus.
The transfer to the retained earnings is done for the excess depreciation charged following the revaluation upwards. The transfer is done through reserves via the SOCIE and not through profit or loss will only show recognised gains/losses in the year and this excess amount is neither, it is merely an electable correction to e made to retained earnings.
Thanks
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