Question

explain the accounting entries required to record a revaluation decrement for property, plant and equipment, and explain the overall impact of those accounting entries on an entity's income statement and balance sheet.

Thanks!

Answer 1

Revaluation is a process thru which the value of the fixed assets are adjusted by comparing with fair values; This adjustment could either result in the upward adjustment or downward adjustment to the value of the assets; As per the IFRS standards, the upward adjustments doesnt have any impact on the Income Statement and these are carried directly the Shareholders Other Equity, thru Revaluation Reserve / Revaluation Surplus account; Incase of any downward adjustment of the value of the assets, initially, that particular value of adjustment is debited from the Revaluation Surplus / Revaluation Reserve Account; If still any balance is left out to be adjusted, then the same is considered as Impairment Losses and is taken to the Income Statement.

Upward Adjustment:

Assets A/c Debit

Revaluation Surplus A/c Credit

Downward Adjustment:

Revaluation Surplus A/c Debit

Assets A/c     Credit

If there is no sufficient balance in the Revaluation Surplus A/c, then:

Impairment Loss A/c Debit

Assets A/c    Credit

Incase of impairment, the net income for the period shall have impact and shall reduce to the extent of the impairment value, in the INCOME STATEMENT;

In Balance Sheet, the Value of the Assets shall get reduced to the extent of the adjustment, to reflect the revalued value; and further the Impairment loss (thru Shareholders Earnings from Income Statement) shall effect the Shareholder Total Equity;