Urgent question for DFS-steve

cornflowercornflower Well-KnownPosts: 129Registered
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:

Comments

  • umerali2003umerali2003 Trusted Regular Posts: 400Registered
    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:
  • peugeotpeugeot Experienced Mentor Posts: 624Registered
    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
  • cornflowercornflower Well-Known Posts: 129Registered
    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
  • peugeotpeugeot Experienced Mentor Posts: 624Registered
    cornflower wrote: »


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

    carrie xx

    sent a reply

    steve
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