Property Revaluation - Postings

Property Revaluation - Postings

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This may be a bit of a simple question but I need a sense check!!
 

We have had a property that we own (and use in the business) revalued at £560,000

The current net book value is broken down as follows:

Land

At cost £227,500 - Acc depn £0 = £227,500

Building

At cost £227,500 - Acc depn £24,927.51 = £202,572.49

We are depreciating the building over 35 years and have 31 years left and this gets posted to the P&L.

My question is, what do I need to do with the depreciation? The land is easy in that I just DR £52,500 to Land Cost and CR £52,500 to the revaluation reserve. But with the building, do I post DR £52,500 to Building Cost and CR £52,500 to revaluation reserve and then depreciate the new value over 31 years after crediting the depreciation back to the P&L? 

Any help would be appreciated!

Replies (4)

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By johngroganjga
12th Mar 2014 12:21

Revaluation reserve

Yes that's right except that you don't credit the accumulated depreciation back to the P&L - it goes to the revaluation reserve as well.

 

Thanks (1)
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By TerryD
12th Mar 2014 15:26

And don't forget the fiddly bit

And then don't forget that every year from now on you'll have to transfer from revaluation reserve to P & L reserve an amount being the difference between the depreciation charged on the revalued amount (as per the accounts) and what the depreciation would have been on the original historical amount. Then, at any time, the depreciated historical cost amount (which needs to be disclosed in the accounts) plus the revaluation reserve will equal the revalued written down value per the accounts.

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By Dave_wales
12th Mar 2014 22:06

fiddly bit!

Great, thanks both.

So TerryD, the original annual depreciation was £6,500 and the depreciation on the revalued amount will be £9,032. So I will Dr P&L Depreciation £9,032 and Cr Bal Sheet Building - Accumulated depreciation £9,032. And then I need to Dr Revaluation reserve £2,532 (9,032-6,500) and Cr P&L Reserve £2,532?

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By TerryD
14th Mar 2014 10:34

Correct!

That's right. The rationale is that since the 2,532 relates to a revaluation surplus, only the 6,500 is a realised loss reducing distributable reserves. Or, to put it another way, this 2,532 is now a realised gain - it becomes realised with the passage of time. In 31 years time the NBV on the revalued amount and that on historical cost will be the same (zero).

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