W4 - PPE pt2

Question 1

How do you carry out revaluation?

Answer 1

• An entire class of PPE at a time, no cherry-picking
• Must be carried out every 3-5 years
• Asset restated at fair value when revaluation takes place

Question 2

How do you account for revaluation? (DR/CR)

Answer 2

Dr PPE, Cr Revaluation reserve/surplus (equity)

Disclosed as “other comprehensive income”

Question 3

How do you account for revaluation when fair value < carrying amount? (DR/CR)

Answer 3

Dr Revaluation surplus/reserve
Cr PPE - Asset (carrying amount)

Disclosed as “other comprehensive income” (as an expense)

However, any ‘excess’ reduction in fair value is recognised in profit or loss i.e.:
Dr Profit or loss
Cr Asset (carrying amount)

Question 4

How do you treat the revaluation reserve/surplus account?

Answer 4

1. Transferred to Retained earnings when the asset is derecognised (i.e. disposed of)
2. Transferred to Retained earnings as the asset is used
   –> amount transferred is the difference between depreciation based on revalued amount and depreciation based on the original cost

Note – Transfer is through reserves only (not Profit or Loss)

Question 5

What are the tabs in “SoCiE” ?

Answer 5

Share capital
Share premium
Revaluation Reserve
Retained Earnings