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Depreciation for Revalued Assets

Dhruv (Student CA-IPCC) (68 Points)

15 September 2011

What is the accounting for depreciation on such revalued assets in subsequent years? Is the whole amount expensed in profit and loss account?

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CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 15 September 2011

In case of revaluation, the depreciation is calculated on the total revalued amount over a period of balance useful lives assessed on the date of revaluation. New cost for the purpose of depreciation will be gross cost less accumulated depreciation on the date of revaluation.

Along with this, the revaluation reserve is amortised to the income statement based on the useful life of the asset to which it relates. This is done to ensure that depreciation on the revalued amounts shouldn’t inflate/ deflate the income statement.

Example: On 1 Jan 2010 the gross cost of asset if 100 and accumulated depreciation is 20. On this date the asset cost is revalued by 50 with the remaining life of the asset to be 10 years. So the relevant cost for the purpose of calculating depreciation is 130(100-20+50).

Assuming a case of straight line depreciation, the depreciation charge will be 13 (130/10). In the same manner, the current year amortisation of revaluation reserve is 5 (50/10). Thus, the net impact on income statement is only 8 (13-5).

Hope that above will help you.

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Bhaskar Unnikrishnan CPA CMA (Accounts / Administration) (414 Points)
Replied 15 September 2011

Dear Dhruv,

After revaluing the asset, depreciation should be charged to P&L on new value of asset. Consider, an asset worth Rs 10,000 with 10 year useful life revalued upward Rs 2,000 after 5 years:

For First 5 years Depreciation should be Rs 10,000/10X5 = Rs 5,000

Remaining value after 5 years is Rs 10,000 - Rs 5,000 = Rs 5,000

Revalued amount after 5 years = Rs 5,000 + Rs 2,000 = Rs 7,000 (presume useful life is constant)

Depreciation value from 6th years onwards = Rs 7,000 / 5 = Rs 1,400

MMoreover, disclosure is required with regards to the provision for depreciation is based on the revalued amount on the estimate of the remaining useful life of such assets. In case the revaluation has a material effect on the amount of depreciation, the same is disclosed separately in the year in which year valuation is carried out.