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Suppose an asset has useful life of 7 years. After 2 years, they adopted revaluation model. The total depreciation after 7 years would be either less or greater than cost of the asset. Will it be faithful representation then?
the asset cost is 7,000 dollars. The revalued amt at year 2 is 8000. The total depreciation for the 7 year is 8000+1000=9000. The company paid only 7,000 for the asset and they recorded 9000 in the pl. they are not tallying though there are compenents in oci and equity. in this case, company is showing loss of 2,000 over the 7 years. it looks a wrong way of doing it.
Hi,
Once the asset has been revalued then the revalued amount is depreciated over the remaining useful life, hence the depreciation on the asset will bring the carrying value down to either nil or its residual value.
In your example above, when at the end of year 2 the asset is revalued to 8,000 it will then be depreciated over the remaining 5 years down to nil. Although we only paid 7,000 for the asset, it was ultimately worth 9,000 to the business and so to charge that in total through profit or loss is a faithful presentation, don’t forget the reserve transfer that is done in the SOCIE to compensate the sahreholders for the extra depreciation charged on the revlaued asset.
Thanks
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