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otal Marks

10

Starting Date

Monday, June 01, 2015

Closing Date

Wednesday, June 03, 2015

Status

Open

Question Title

IAS 16 - Property, Plant and Equipment

Question Description

Financial Accounting II (MGT401)

GDB

  Learning Objectives: Students will be able to learn the basic principles of IAS 16 - Property, Plant and Equipment regarding revaluation.

   Scenario:

   Mr. Ali has recently joined a manufacturing company as Accounts Executive. The company is in the process of revaluing its fixed assets. The company’s Manager Accounts has a brief discussion with Ali on various aspects of this revaluation. In this continuation, you are required to briefly describe the treatment of revaluation surplus and revaluation deficit as per IAS-16 on Property, Plant and Equipment.

 

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Replies to This Discussion

 

Revaluation surplus, indicating the movement for the period and any restrictions on the distribution of the balance to shareholders.

Effect of Revaluation The value of an item of property, plant and equipment may be increased or decreased as a result of revaluation. How should any increase in value be treated when a revaluation takes place? The debit will be the increase in value in the balance sheet, but what about the credit? IAS 16 requires the increase to be credited to a revaluation surplus (i.e. part of owners’ equity), unless the increase is reversing a previous decrease which was recognized as an expense. To the extent that this offset is made, the increase is recognized as income; any excess is then taken to the revaluation reserve.

Treatment of Revaluation Surplus

A revaluation surplus is credited directly to equity under the heading of Revaluation Surplus.

However a revaluation increase should be treated as income to the extent that it reverses the revaluation decrease of the same asset previously recognized as expense.

The revaluation surplus included in equity may be transferred directly to retained earnings when the surplus is realized. The whole surplus may be realized on the retirement or disposal of the asset. However, some of the surplus mat be realized as the asset is used by the enterprise; in such a case, the amount of the surplus realized is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. The transfer from revaluation surplus to retained earnings is not made through the income statement

plzzzz koi 

Treatment of Revaluation deficit

ka bra ma bta day 

Effect of Revaluation:
The value of property, plant and equipment may be increased or decreased as a result of revaluation of assets. The assets are revalued every year. Financial Reporting Standards (IFRS) require the fixed assets to be initially recorded at cost price. The any increase during the revaluation of an asset recognized as income and any decrease in revaluation is recognized as expense.

Treatment of Revaluation Surplus:
The any increase during the revaluation of an asset recognized as income. The revaluation surplus is credited and the revalued asset is debited. The increase in the revaluation is considered as a normal gain of the business and it is not recorded in the income statement. All the upward revaluations of a company's assets hold until those assets are disposed of.

Treatment of Revaluation Deficit:
The any decreased during the revaluation of an asset recognized as expense. The revaluation surplus is debited and the revalued asset is credited. The deficit was mainly due to a decrease in the prices of equipment resulting from the technological advancement. The decrease in the revaluation is considered as a normal loss of the business and it is not recorded in the income statement. All the downward revaluations of a company's assets hold until those assets are disposed of.

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The item of property, plant and equipment may be increased or decreased as a result of revaluation.

IAS 16 gives the increase to be Cr. to a revaluation surplus for example owner’s equity; it is less the increase is previous decrease which was known as expense. T the increase is shown as income; any excess is then taken to the revaluation

A revaluation loss is charged to profit and loss account in the period in which the revaluation is carried out.

Revaluation decrease should be charged against any related revaluation surplus extend that the decrease not exceed the amount in surplus in respect of same asset. Decrease should be known as expense except previous increase taken as a revaluation surplus in owners’ equity.

Revolution surplus is DEBIT

Income and expense account is DEBIT

Asset value (Balance sheet) is CREDIT

Treatment of revaluation surplus

When the surplus is realized in equity may transfer to retain earning. The whole surplus on the retirement or disposal of asset. Some of the surplus realized by the enterprise in case of different amount between depreciation on the revalued carrying amount of asset and original cost.

The Revaluation of deficit

 

The surplus on revaluation of fixed assets s not applied to set-off or reduce any deficit or loss, in past, current or future, or in any manner applies, adjusted or treated as to add to the income, profit or surplus of the company, or utilized directly or indirectly by way of dividend or bonus.

Provided that the surplus on revaluation of fixed assets may be applied by the company in setting-off or in diminution of any deficit arising from the revaluation of any other fixed assets of the company

First method of Gross carrying value of the asset should be restated along with the accumulated depreciation so that the carrying value equals the revalued amount.

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