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I got some issue after seeing your several lectures. Is it correct that:
1) Bonus shares are always issued from the share premium account but if they are issued for free then why do we need money for from the share premium?
2) If a company does not have a share premium account but they still want to issue bonus shares then from which source they will use the money from and what would be the double entry?
3) What is stock split please explain. Is that same as rights issue?
4) When the asset is revalued then it is unrealized profit
5) Realized profit is when the asset is actually sold and cash is received and it is recorded in the SOPL. All the realized profit is recognized in SOPL?
6) Unrealized profit is when the asset is not actually sold and cash is not received and it is recorded in SOFP as revaluation reserve. Revaluation reserve is also called revaluation surplus?
7) Once the asset is sold then it is recorded in the other comprehensive income where all the Unrealized profit is recorded?
8) I get confused where to record the profit on revaluation, either in SoFP or OCI?
9) The journal entry of revaluation is:
Debit Cost
Credit Revaluation1. Transferring from the share premium account to the share capital account is not a transfer of cash. The total of shareholders funds is not changed.
2. From other reserves.
3. It is simply cancelling the existing shares and replacing with new shares. For example, if the existing shares have a nominal value of $1 per share, the might cancel them and give all shareholders two shares with a nominal value of 50c each instead. The total shareholders funds do not change.
4. Yes
5. Yes
6. Yes
7. No. If the asset is sold then the profit has been realised and appears in the SOPL.
8. It is shown in the Statement of Comprehensive Income and also increases the Revaluation Reserve (which appears on the SOFP).
9. The cost is increased but also the Accumulated depreciation on the asset is removed. I do show the entries for this in my free lectures on Limited Companies – do watch it again 🙂
2. Like what other reserves?
3. The reason a company chooses to stock split so that they can reduce the high market price of their shares because they would end up with more number of shares?
4. For example if an asset (machine) worth of $30,000 is revalued to $50,000 then the difference of $20,000 is the revaluation surplus. We will post the journal entry by debiting Machine ($20,000) and crediting Revaluation reserve account ($20,000)?
5. The revaluation entry will be recorded as follows:
Debit Machine $20,000
Credit Revaluation reserve and OCI $20,0006. We will record the revaluation profit of $20,000 in revaluation reserve and as well in the Other comprehensive income as unrealized profit on revaluation?
7. Is it necessary to record the revaluation profit in OCI or it is something not necessary because the journal entry is used in both SOFP and OCI when we credit revaluation reserve?
2. Any of the other reserves (such as revaluation reserve and accumulated profits).
3. That is true (although more relevant for Paper FM than for Paper FA)
4 and 5. No. We debit the cost account with the difference between the revaluation and the original cost (and credit an account to calculate the revaluation profit). We debit the accumulated depreciation account with the depreciation on the asset revalued, and credit the account to calculate the revaluation profit. Again, I show the entries in my free lectures.
The revaluation profit is the difference between the ravelled amount and the carrying value of the asset.Thanks. I appreciate your help.
You didn’t answer my question (7). Let me ask you again. Is it necessary to record the revaluation profit in OCI or it is something not necessary because the journal entry is used in both SOFP and OCI when we credit revaluation reserve?
For example if an asset currently worth $100,000 and increase by $20000 then we debit cost $20,000 and credit revaluation reserve $20,000. Now the revaluation reserve will be recorded in SOFP as part of equity item or recorded in OCI as part of Unrealized profit?
Profits on revaluation are shown in the Statement of Comprehensive Income (as I explain in my free lectures).
Whenever an asset is revalued we debit NCA in SoFP and credit revaluation reserve in SOFP but you said that we record the revaluation reserve in both SOFP and OCI as unrealized profit but how it is possible that one credit entry is record in two different statements such as SOFP and OCI?
Kindly explain?
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