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    IntAcc - Revaluation

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    Joyce Ortega

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    IntAcc - Revaluation

    Uploaded by

    Joyce Ortega
    33 views3 pages

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    Copyright:

    © All Rights Reserved
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    33 views3 pages

    IntAcc - Revaluation

    Uploaded by

    Joyce Ortega

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 3

    Intermediate Accounting II

    Notes by: Jewel Joyce B. Ortega

    Lesson 2: REVALUATION

    Revaluation - Fair value on the date of revaluation less any subsequent accumulated
    depreciation and any subsequent accumulated impairment loss.

    Frequency of Revaluation - Depends upon the changes in fair value.


    a. If change is significant, annual revaluation.
    b. If insignificant, three to five years.

    Separate classes of PPEs:


    a. Land
    b. Land and Building
    c. Machinery
    d. Ships
    e. Aircrafts
    f. Motor/Vehicle
    g. Furniture and fixtures
    h. Office Equipment

    Note: Different classes may use different measurement models.Same item of the same
    class should use the same model (Principle of consistency). Should be revalued simultaneously
    in order to avoid selective revaluation of assets or reporting of amounts which are a mixture of
    cost and value at different dates.

    Basis of Revaluation:
    1. Fair Value - determined by a qualified appraisers/valuers
    2. Depreciated Replacement Cost/Sound Value - current purchase price of the asset
    minus accumulated depreciation

    Approaches in Recording Revaluation:


    1. Proportional Approach - Hindi lang yung mismong asset ang nagkakaron ng revaluation,
    but rather it’s proportion to its accumulated depreciation account.
    - May percentages then proportion ang change sa percentage ng Cost, RC and App.

    Cost Replacement Cost Appreciation


    Asset Given (a) Given (b) e (b-a)
    Accumulated Depreciation Given (c) Given (d) f (d-c)
    CA/SV/RS a-c b-d (Fair Value) e-f or b-d less a-c

    Journal Entry: Building (Debit) Accumulated Depreciation + Revaluation Surplus (Credit)


    Note: Revaluation Surplus is an equity account, recorded under the OCI as there is no
    actual realization in this account, so the effects (income) will be recognized in the subsequent
    recording period. This account will not stay in the book forever even though it’s a real account.
    Its life depends on the life of the asset (fully depreciated). For land, it will only lose its RS
    account once land is sold.
    Piecemeal Realization - transfer of Revaluation Surplus to Retained Earnings over
    the remaining useful life of the asset. CV or RS/Remaining Useful Life

    When an account becomes part of an equity, it will never go out, it will only be recycled
    within the equity. Meaning when RS is debited (zeroed out) it will come with a credit in
    Retained Earnings.

    2. Elimination Approach -

    Computations:
    a. Depreciation (SV/Remaining Useful Life)
    b. Depreciation on cost (CA/Remaining useful life)
    c. Depreciation on Appreciation (RS/ Remaining Useful life)

    Note: a,b,and c are computations for annual depreciation subsequent to revaluation – b


    and c in total is equal to a (Depreciation on revalued amount or sound value).

    d. Annual Depreciation on Cost = Accumulated Depreciation/Age of Asset


    Original Life of an Asset = Cost of an Asset/Annual Depreciation on Cost
    Or = Age of Asset/Percentage of Accumulated Depreciation (Table)
    Minus Age of Asset
    Journal Entries:
    a. To record the revaluation:
    Asset xx (e)
    Accumulated Depreciation xx (f)
    Revaluation Surplus xx (e-f or c-d less a-b)
    Note: If Asset in Fair Value is given, to get the replacement cost = Fair
    Value/1-percentage of Accumulated Depreciation

    b. To record depreciation:
    Depreciation xx (Fair Value/Remaining or RS/Life)
    Accumulated Depreciation xx
    c. To record the piecemeal realization
    Revaluation Surplus xx (RS/Remaining useful life)
    Retained Earnings xx

    Note: This (a,b,c) is for a proportional approach.


    d. Accumulated Depreciation xx
    Building xx (App on Revaluation - RS)
    Building xx
    Revaluation Surplus xx (Fair Value-Cost less Acc. Dep.)
    e. Depreciation xx
    Accumulated Depreciation xx (Same for proportional)
    f. Revaluation Surplus xx
    Retained Earnings xx (Same for proportional)

    Note: This (d,e,f) is for an elimination approach.

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