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Hi teacher.
Could you please explain in example 5 (chapter 6 – Depreciation) the following quesiton:
It says, if we revalued GBV from 3600$m to 3072$m, we have a profit (the difference between AD and revalued amount. Hope I understand it correctly)But what if we revalued our asset, say, to 4000$m, than we should Dr PPE for 400.000$ and Cr revaluation? plus we have already AD in credit.
Do we have a profit again in such case? In what case we have an expense (I can suggest, when our AD is lower than decrease of GBV due to revalution)?Thank you!
I do not think that you have understand correctly.
The profit in all cases is the difference between the revalued amount and the net book value (or carrying value) of the asset.
For the revalued amount to appear in our accounts, we need to remove the current accumulated depreciation, and change the ‘cost’ to the revalued amount. Both entries are made via the revaluation account, and the balance that results on the revaluation account is the revaluation surplus.
I am sorry, but I still can’t get it.
Could you explain in my examples, please:
say, we have cost of an asset – 3,5m$ and AD (1.5m$)
we revalued the asset at 4m$We have to do the following entries:
Dr AD 1.5m$ to remove the current AD
Cr Revaluation reserve 1.5$mDr Cost of asset 0.5m$ to change “cost” to the revalued amount
Cr Revaluation reserve 0.5$Thus we have Cr balance 2m$ – is it going to SoFP ?
Do we have any profit in statement of Comprehensive income in that case ?
Is it possible to get any expense\loss in PL statement?Thank you!
The Cr balance of $2M is the profit on revaluation and goes to the revaluation reserve, not the statement of profit or loss. (You will know from the lecture on Limited Companies that it has to be shown as a separate reserve, because it is unrealised profit.)
It will be also shown in the Statement of Comprehensive Income (below the profit for the year).
And no, there can not be an expense in the Statement of profit or loss.
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