Revaluation of Assets - Simple Question probably!!

Revaluation of Assets - Simple Question probably!!

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Sole trader wishes to revalue plant & equipment purely for presentational purposes but also as possibility that may require loan finance later in year.

Most examples say something like asset A cost £10K, depn to date £4K now valued at £12K - therefore debit cost of asset £2K, remove depn to date £4K (debit) and credit revaluation reserve £6K - no problem with that and how to present in traditional fixed asset schedule.

But what if value of asset above was £9K, i.e. less than original cost but more than current net book value.

Do you make an adjustment in the cost section of fixed asset schedule or just clear out enough depreciation so that cost still £10K but depn to date only £1K?

I'm using IRIS software and have option to adjust cost figure for a revaluation adjustment which it expects to be upwards or is it an impairment?

Marie

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Euan's picture
By Euan MacLennan
27th May 2009 10:50

On second thoughts ...
I was wrong.

I now accept that the fixed asset Cost & Revaluation total cannot exceed the (upwards) revalued amount. The Revaluation Reserve must show the uplift from NBV to the valuation. Nothing must be posted to the P&L account on the revaluation. So, the dustbin into which to chuck the balancing figure can only be the accumulated Depreciation.

I am still not sure about TK's treatment where the valuation of the used fixed asset is less than its cost. Applying the same logic as for the upwards revaluation, you would credit a negative valuation adjustment to Cost & Revaluation of £1K, credit £3K to Revaluation Reserve and write off £4K of accumulated Depreciation.

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By AnonymousUser
26th May 2009 20:17

my approach is as per the following:
if revaluing above original cost price then I would show this as the new cost/revaluation amount.
For example new value £12,000, this is the amount I would show as the cost/revalued amount.
It is clearly misleading to show a cost/revalued amount of £16,000, even though the figures will give the same end result.

If revaluing below original cost, but above current value, then you must not reduce cost/revalued amount downwards, as you are then showing the cost below original cost. I would say however, that this method is correct when you are dealing with stock, as stock is shown at the lower of cost and NRV.

To summarise, I also agree with the later postings and disagree with the earlier offerings.

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By 0680727
26th May 2009 19:20

Sorry but Marie is correct..
I have to say Marie you are correct with your assumption on the first part .. the cost/value cannot exceed 12k. These are quite small figures for a revaluation but can you imagine how it would read if you were talking about property worth hundred of thousands and you adopted Euans method??!?!? The only bit I would add is that you should disclose the historical data below the fixed asset note i.e 10k less 4k and then ongoing depreciation as if the asset had never been revalued. (for information)

The second part ... I would just cr cost 1k and dr depreciation £4k and cr revaluation reserve with 3k. The new value does not count as an impairment as the nbv is only 6k. Therefore has to be a revaluation adjustment. In a sole trader accounts though I don't see anything wrong with adjusting the depreciation to 1k to leave a nbv of 9k

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By mjswebster
26th May 2009 19:12

I'm with Marie
I disagree with both Euan and Penny, and agree with Marie. Whenever a fixed asset is revalued, the accumulated depreciation brought forward on that asset is always reset to nil, and the cost is adjusted to the new valuation. This is certaintly the way we were taught to do it when I was doing my chartered exams (I've just checked my notes!)

It is also the way "Applying GAAP 2009/10" published by CCH says to do it, which even includes a simple example (Asset cost £100, accummulated depn is £30. Revalued to £160. Increase in NBV of £90 goes to Revaluation Reserve, accum depn is set to zero and £60 is added to cost / revaluation.)

I agree with the part about transferring the 'excess' depreciation back from the revalaution reserve to the P&L reserve each year, but that wasn't really what the question was about.

If the asset is revalued up to £9K, then I would credit £1k to cost / revaluation, debit depn to date by £4k, and credit £3k to the revaluation reserve.

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Euan's picture
By Euan MacLennan
26th May 2009 14:43

I don't agree with your method
You are revaluing an asset carried at £6K in the balance sheet (cost £10K less £4K depreciation) up to £12K. The revaluation adjustment is DR £6K (£12K less £6K NBV) added to Cost & Revaluation in a fixed asset note and CR £6K to Revaluation Reserve. The result is the £12K you want (Cost & Revaluation £16K less same old Depreciation £4K).

Remember to depreciate based on £16K for the remaining life of the asset and release 6/16 of the depreciation charge from the Revaluation Reserve to the P&L, so that the net charge in the P&L is the depreciation on the original cost.

If your valuation is £9K, your adjustment is DR Cost & Revaluation £3K and CR Revaluation Reserve £3K.

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