11/04/2022

Transfer of revaluation reserve

• Can't keep it forever
• Is transferred to Retained Earnings:
– As asset is used
– When it is retired
– When it is disposed off

IAS 16 PPE
Acc policy
Gripping GAAP 8

Realises through use

Simplified example
1 Jan 20.1 KCP = R200 000
Difference between
Useful life = 8Y
HCA DEPR 31 Dec 20.1 (YE) FV = R220 000

ACA DEPR Dr PPE (SFP) 45 000

OR Cr Gain on revaluation (OCI) 45 000

Balance remaining Closing entry

useful life Dr Gain on revaluation (OCI) 45 000
Cr Revaluation reserve (SCE) 45 000

Transfer of revaluation reserve Simplified example

• Only revalued on 31 Dec 20.1 (end of year) 1 Jan 20.2 CA = R220 000
• No time passed Remain. useful life = 7Y
• Actual and historical depreciation is equal 31 Dec 20.2 (YE) FV = R140 000
• Therefore R0 diff
• No realisation Dr Depreciation (P/L) 31 429
Cr Acc depreciation (SFP) 31 429

CA = 220 000 – 31 429 = R188 571

FV = 140 000

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Transfer of revaluation reserve Transfer of revaluation reserve

• First do transfer before revalue. • First do transfer before revalue.

• HCA depr = R25 000 • HCA depr = R25 000
• ACA depr = R31 429 • ACA depr = R31 429
• Diff = R6 429 • Diff = R6 429
OR
R45 000/7 = R6 429

Simplified example Simplified example

1 Jan 20.2 CA = R220 000 1 Jan 20.2 CA = R220 000
Remain. useful life = 7Y Remain. useful life = 7Y
31 Dec 20.2 (YE) FV = R140 000 31 Dec 20.2 (YE) FV = R140 000

Dr Revaluation reserve (SCE) 6 429 Dr Loss with revaluation (OCI) 38 571

Cr Retained earnings (SCE) 6 429 Dr Revaluation expense (P/L) 10 000
Cr PPE (SFP) 48 571

Transfer of revaluation reserve Example

• Created R45 000 at end of year 1

• Realised R6 429
• Used R38 571
• Balance = R0

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Example Example
20.1
Dr Asset (SFP) 100
Cr Bank (SFP) 100
Dr Depreciation (p/l) 25
Cr Acc depreciation (SFP) 25

Example Example
20.2 20.2
Dr Asset (SFP) 45 Dr Gain on revaluation (OCI) 45
Cr Gain on revaluation (OCI) 45 Cr Revaluation reserve (SCE) 45

Dr Depreciation (p/l) (120/3) 40 Dr Revaluation reserve (SCE) 15

Cr Acc depreciation (SFP) 40 Cr Retained earning (SCE) 15
(40 – 25 = 15) Check 45/3 = 15

Example Example
20.3 20.4

Dr Depreciation (p/l) (80/2) 40 Dr Depreciation (p/l) (40/1) 40

Cr Acc depreciation (SFP) 40 Cr Acc depreciation (SFP) 40
Dr Revaluation reserve (SCE) 15 Dr Revaluation reserve (SCE) 15
Cr Retained earning (SCE) 15 Cr Retained earning (SCE) 15
(40 – 25 = 15) Check 30/2 = 15 (40 – 25 = 15) Check 30/2 = 15

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Example Example