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Revaluation reserve movement

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 Please can anyone explain the journal entries required on disposal of investment property with previous revaluation loss. Also how will this affect deferred tax.

Property was aquired for £500k 2020 y/e and sold for £300k in the current year. Revalued at the end of 2020 year end to £450k and revaluation loss of £50k in the undistributable reserve account.

 

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Psycho
By Wilson Philips
11th Jul 2020 19:56

Exam question?

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By frankfx
11th Jul 2020 21:10

Phew
Good question.
Answer in accounting manual?
Surely fit for purpose, to get one through exams.

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With workings.

Marks are given for references to FRS 102.

Marks deducted if FRS 105 cited

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By Tim Vane
11th Jul 2020 22:31

If the asset was sold in the future, why was it sold at a loss? Dumb way to use a time machine!

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By johnt27
13th Jul 2020 09:41

I'm intrigued about the undistributable reserve. From where did this get carved out?

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Replying to johnt27:
Hallerud at Easter
By DJKL
13th Jul 2020 10:09

I suspect it is a memorandum part of the P &L reserve rather than a distinct nominal account, more aide memoire than anything else.

Of course where it overall reflects a debit balance I suspect it should then impact what reserves may be distributed, but have never actually dealt with such a scenario under the new regime.

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Replying to DJKL:
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By johnt27
13th Jul 2020 10:31

You are right that it is part of the P&L reserve - I was just being facetious! And it can be carved out as an aide memoire, although there is no requirement to do so and wouldn't, normally, be labelled an undistributable reserve, merely the undistributable part of retained earnings. More often than not it's common to create a seperate reserve called the Fair Value reserve, although some technicians don't generally feel this is appropriate as this reserve should be utilised for the more weird and wacky FV adjustments you can get. Having a seperate reserve makes it clearer to the users of the accounts, IMHO, means less faffing about in software and removes the temptation to dividend out FV gains. It also makes it easier to pick up any deferred tax adjustments are in the correct place...

As for the overall picture if you had a negative undistributable section of an overall positive retained earnings balance you can distribute the full (gross) distributable elements of the reserve with no issues regarding illegal dividends etc. More commonly what you find happens is that a deficit in distributable reserves is masked by a non-distributable gain with the result being dividends voted are not legal.

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Replying to johnt27:
Hallerud at Easter
By DJKL
13th Jul 2020 10:48

The latter part is interesting,thanks. Prudence cannot be a happy bunny (though I understand she is actually either a kitten or more recently a part time cow)

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