Urgent question for DFS-steve

cornflower

steve can you help me. Is there a simple method for learning revaluation methods.

I have a complete brain freeze on these.

Thanks

Carrie.:001_smile:

umerali2003

steve usually come on the week days just post the question i will might be able 2 help u on revaluation bcz i have recently passed dfs :thumbup1:

peugeot

Sorry, we were out last night and have just seen your message. In terms of revaluations of PPE the only way I can see this being examined at DFS level is by way of a building being revalued.

See this example:

Company A draft accounts show buildings valued as follows:

Cost.........................................60,000
Accumulated depreciation............(12,000)
Book value.................................48,000

Valuation of building = 90,000
Depreciation policy = 10 years straight line.

We have to (a) account for the uplift in value and (b) charge depreciation on the revalued amount.

Deal with the uplift in value first
The cost prior to revaluation = $60,000 so we need to uplift this by (60,000 - 90,000) = $30,000 as follows:

Dr Property plant and equipment................................30,000
Cr surplus on revaluation in equity section of bal sheet.......30,000

Being uplift in 'cost' price of building

Next deal with the depreciation to-date
Dr accumulated depreciation PPE................................12,000
Cr surplus on revaluation in equity sectio of bal sheet..........12,000

Being adj to depreciation already charged

• We do not reverse the accumulated depreciation to the income statement because the asset has not been sold.

Next work out the depreciation charge
This is where it can get a bit messy. We know in the question that the original depreciation charge was $12,000 and that the accounting policy for depreciation of buildings is 10 years straight line. The original cost was $60,000 so 10 years = $6,000 per year = 2 years already charged, so we depreciate the buildings based on the revalued amount at (10 years minus 2 years) = 8 years, so the depreciation charge = $90,000 / 8 = $11,250 per year, so:

Dr depreciation PPE income statement...............................11,250
Cr PPE accumulated depreciation.........................................11,250

Being depreciation charge for year

Balance sheet extracts
Property plant and equipment
Cost...................60,000 + 30,000.................................90,000
Depreciation..............................................................(11,250)
................................................................................78,750

Equity
Surplus on revaluation $30k + 12k (original dep charge)......42,000

In summary:

• Deal with revaluing the actual cost - dr PPE cr revaluation reserve
• Reverse the depreciation todate - dr PPE deprec, cr revaluation
• Work out the depreciation charge going forward but be aware of the number of years left to charge (note the question might give you this info - if it doesn't you will have to work it out).

Once you have practised lots of questions in this area you will get the hang of it - the common pitfall in my example anove would be students charging ten years depreciation (because the question says that is the policy) BUT 2 years have already been charged, so be careful here because not reading and understanding the question thoroughly would mean you could undercharge depreciation.

Hope that helps.

Regards
Steve

cornflower

umerali2003 wrote: »

steve usually come on the week days just post the question i will might be able 2 help u on revaluation bcz i have recently passed dfs :thumbup1:

umerali thanx for your reply but it was not an actual question I just could not get my head round the method but thanx anyway.


Steve you are a genius.Evrytime you answer a question I have it clicks thank you for doing that for me. i will print off this thread and do some questions after I have taken the dog for a walk! As far as i am concerned steve you walk on water!:thumbup1::thumbup1:

/did you see my question about revision in my neck of the woods?

carrie xx

peugeot

cornflower wrote: »

/did you see my question about revision in my neck of the woods?

carrie xx

sent a reply

steve