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I am trying to understand how to record revaluation reserve and gain on revaluation.
For eg a business bought a machine for $100,000 with a life of 10 years on (1 Jan 2001) but then the asset was revalued to $120,000 on (30 June 2003). The fair value of the asset was again changed to $150,000 on (31 Dec 2003).
Solution:
Cost = $100,000
Accumulated Depreciation = $25,000
NBV = $75,000
Fair value = $120,000
Gain on revaluation = $45,000Accounting entry for revaluation surplus:
Debit Machine $20,000
Debit Accumulated depreciation $25,000
Credit Revaluation surplus $45,000My question is if we record the revaluation surplus in SOFP as an equity item then what amount we will show as gain on revaluation in OCI?
Is it true that revaluation surplus are always record on SOFP as equity item (correct?)
Secondly please state what amounts to record in SOFP and OCI respectively if the fair is revised again to $150,000?
Hi,
The gain that is recorded on the SFP is also the amount shown as OCI at the bottom of the SPLOCI, so here it would be your $45,000. The best way to think about it is that the gain is taken through OCI on the SPLOCI and then it is shown in equity in a similar way that the profit for the year is shown in equity as part of retained earnings.
If the asset is revalued to $150,000 then assuming there is no depreciation to account for to make it easier then the gain would be $25,000. This would be shown in OCI and then the revaluation surplus increased from its current $45,000 to $70,000 (45 + 25).
Hope that clears it all up.
Thanks
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