Question

On 30 June 2018, the Statement of Financial Position of Emerald Ltd showed the following non-current asset after charging depreciation:

Plant	400,000
Accumulated Depreciation	(150,000)
	250,000

As of 30 June 2018, the company decided to adopt the revaluation model for the plant. Therefore, on 30 June 2018, an independent valuer assessed the fair value of the plant to be $280,000 with a remaining useful life of 7 years.

On 30 June 2019, the plant was revalued again to its fair value of 195,000 with a the remaining useful life of 6 years.

The income tax rate is 30% and the company uses straight-line depreciation for all property, plant and equipment.

Required:

Prepare all necessary entries related to the plant from 30 June 2018 to 30 June 2019.

Answer 1

Date	Entry	Debit (Rs.)	Credit (Rs.)
30/06/18	Plant A/c	30,000
	To Revaluation Reserve A/c		30,000
30/06/19	Depreciation A/c	40,000
	To Accumulated Depreciation A/c		40,000
30/06/19	Revaluation Reserve A/c	30,000
	Impairment loss A/c	15,000
	To Plant A/c		45,000

Notes:

1) If the value of asset increases in revaluation, the amount is credited to a revaluation reserve account.

Since the net value of the plant is 240,000 at 30/6/18, the increase in value of plant is 280,000-240,000 = 40,000.

2) Depreciation for the period 30/6/18 to 30/6/19 is    = 40,000

3) On 30/6/19, the value of the plant is 280,000 - 40,000 = 240,000

Since the plant is revalued at 195,000 ,

the plant value will decrease by 240,000 - 195,000 = 45,000.

Rule: When decreasing the value of asset in revaluation , first utilize the revaluation reserve and then balance amount is debited to "impairment loss A/c."