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Good afternoon Mike,
I have a question regarding TNCA,lets supposed that an asset has been revalued at the end of the year and we have gotten a figure in the revaluation surplus. At the end of the next year what will happened with the figure that we have in the revaluation surplus account? will it be always transfer to the retained earnings in proportion to the useful life that the asset still has(for example if it has still 8 years of useful life, then 1/8 will be transfer from revaluation surplus to retained earnings)? I hope I explained myself properly.
Thank you for the clarification!
Yes, you have explained the question clearly 🙂
There is no requirement for an annual transfer from revaluation reserve to retained earnings. It is seen as good practice to transfer an amount equal to the excess depreciation that has been charged on the revaluation surplus, but it is not a requirement (yet!)
Ok?
Oki! Got it 🙂
Nevertheless I have another question regarding the same topic, there is one question in the practice & revision kit from BPP which states the following: a building which original cost was $900,000 January 20X0 (50 years depreciation),has a fair value on 30th of June 20X8 of $950,000 and after on December 20X8 has a fair valueof $1.2 million. What amount should be shown in the revaluation surplus at December 20X8? According to the answer should be shown $203,000 revaluation surplus. I understand that figures comes from the the revaluation @ June 20X8. Though lately in the answer it mentioned that the increase of (1,200-950 December 20X8) = 250k is supposed to be credited to P& L. I don’t understand why the 250k from December shouldn’t be shown in the revaluation surplus as well. Once again thank you for your support.
Best regards,
Well! You’ve got me stumped! I can’t even see where 203,000 comes from!
Depreciation for 7.5 years @ 18,000 per year is 135,000 giving a book value of 765,000 and a revaluation gain of 185,000
Carrying value after revaluation is therefore 950,000 with 42.5 years remaining life and that gives me 22,350 depreciation per year. For half a year that’s 11,175 gives me a carrying value of 938,825 now revalued to 1,200,000 – a revaluation gain of 211,175
I simply cannot think other than that you have not given me full information!
?
sorry my fault if it was not clear, the questions says exactly like this: “Following a delayering exercise , Carter vacated an office building and let it out to a third party on June 30th 20X8. The building had an original cost of $900,000 on January 20X0 and was being depreciated over 50 years. It was judged to have a fair value on 30th June 20X8 of $950,000. At the year end date of 31 December 20X8 the fair value of the building was estimated at 1.2 million.
Carter uses the fair value model for investment property.
What amount will be shown in revaluation surplus at 31 December 20X8 in respect of this building?”
And the answer is 203,000 which comes from the following workings
cost 1.1.X0 -900,000
depreciation to 30.06.X8 (153,000)
Carrying amount 30.06.x8 747,000
revaluation surplus 203,000
fair value 30.06.X8 950,000But there is another increase of $250,000 that comes from (1,200-950) which arose from between 30.06.X8 and 31.12.X8. Why this is not consider as revaluation surplus?
Sorry for the first confusion answer & thanks for your support! 🙂
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