1 Introduction to published accounts Chapter learning objectives

Journal (assuming revalued amount is greater than original cost):
$ $ Dr Non-current assets cost/valuation (revalued amount – cost) X
Dr Accumulated depreciation
(eliminate accumulated balance) X
Cr Other Comprehensive Income (revaluation surplus) X
Recognising revaluation gains and losses
Revaluation gains are recorded as a component of other comprehensive
income either within the statement of profit or loss and other comprehensive
income or in a separate statement. This gain is then carried in a revaluation
surplus within equity. This revaluation surplus is a capital reserve and is
therefore not permitted to be distributed to the shareholders.
Revaluation losses, which represent an impairment of the asset value, are
recognised in the statement of profit or loss. When a revaluation loss arises on a previously revalued asset it should be deducted first against the previous
revaluation gain and can therefore be taken to other comprehensive income in
the year. Any excess impairment will then be recorded as an impairment
expense in the statement of profit or loss.
Note that offset of gains and losses between different properties is not
permitted.

32 KAPLAN PUBLISHING

Chapter 2

^Illustration 6 – Revaluation of non-current assets

Recognition of revaluation gain An entity revalues its buildings and decides to incorporate the revaluation into its financial statements. Extract from the statement of financial position at 31 December 20X7: $000 Buildings: Cost 1,200 Depreciation (144) ––––– 1,056 ––––– The building is revalued at 1 January 20X8 at $1,400,000. Its useful life is 40 years at that date.