8. Non-current assets: disposal and revaluation

Question 1

1. Which standard is responsible for non-current assets?

2. What does it say in regards to disposals?

Answer 1

1. IAS16

2. Carrying amount shall be disposed when no future economic benefit is expected from its use.

Question 2

How would you post a cash disposal? (3)

Answer 2

1. remove initial cost
   Dr disposals, Cr cash
2. remove depreciation
   Dr depreciation, Cr disposals
3. Record proceeds
   Dr cash, Cr disposals

Question 3

How would you post a disposal through part exchange agreement? (4)

Answer 3

1. remove initial cost
   Dr disposals, Cr cash
2. remove depreciation
   Dr depreciation, Cr disposals
3. Record part exchange proceeds
   Dr asset, Cr disposals
4. Record cash proceeds
   Dr cash, Cr disposals

Question 4

Revaluation:

1. Why is revaluation hypothetical?
2. How do you post a revaluation of an asset?
3. How does this differ if the asset has been depreciated?

Answer 4

1. Because unless the asset is sold, the owner receives no benefit.
2. Dr non current asset, Cr revaluation

3 Dr Non current asset, Dr depreciation, Cr revaluation

Question 5

Depreciation of a revalued asset:

1. Why will the depreciation charge of a revalued asset always be higher?
2. Where can the additional depreciation be posted to? How is this posted?
3. What are the two main rules on annual transfers?

Answer 5

1. Because the item is still depreciated against the same useful economic life.
2. Retained earnings: Dr revaluation surplus, Cr retained earnings.
3. Optional, but if chosen must be done year in year out.

All items in one class must be revalued.

Question 6

Disposal of a revalued asset: posting (5)

Answer 6

1: remove asset cost
Dr disposals
Cr asset

2: remove depreciation
Dr depreciation
Cr disposals

3: record proceeds:
Dr cash
Cr disposals

4: determine profit/loss
Dr disposals, Cr profit
OR
Dr loss, Cr disposals

5: clear the revaluation surplus account:
Dr revaluation surplus
Cr retained earnings

Question 7

What are the principles disclosure requirements? (4)

Answer 7

• measurement for carrying amount
• depreciation method used
• commitments for future PPE
• gross amount of each asset and related depreciation at the beginning and end og the period.

Question 8

What must the reconciliation show? (5)

Answer 8

• additions
• disposals
• revaluations
• depreciation
• assets for sale

Question 9

In terms of revaluation, what must be disclosed? (5)

Answer 9

• date
• method
• carrying amount
• revaluation surplus
• who performed valuation