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Revaluation of Factory Land

Ravishankar (C.A) (454 Points)

28 August 2008

What are the implications of revaluing the Factory Land for a Pvt Ltd. Company ?

How can the revaluation reserve be utilised ? what are the implications from Income Tax point of view ?

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7 Replies

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 28 August 2008

I am giving the following wording found in the Annual report of one of the pvt ltd companies which is self explanatory.

Freehold land acquired up to 31.03.1987 was revalued and the resultant increase in the value of such land was credited to Capital Reserve.

The revaluation has no implication in IT. The capital reserve can not be utilised for distribution amongst shareholders.

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Ravishankar (C.A) (454 Points)
Replied 28 August 2008

Originally posted by :S.Srinivasaraghavan
"	I am giving the following wording found in the Annual report of one of the pvt ltd companies which is self explanatory. Freehold land acquired up to 31.03.1987 was revalued and the resultant increase in the value of such land was credited to Capital Reserve. The revaluation has no implication in IT. The capital reserve can not be utilised for distribution amongst shareholders.	"

Thanks,

how can the revaluation reserve be utilised? can bonus shares be issued out of this ?

Shubhankar Limaye (B.Com.) (174 Points)
Replied 29 August 2008

Yes. bonus shares can be issued out of such revaluation reserves

H.R.Sampath Kumar (Company Secretary & DY GM A/cs) (61 Points)
Replied 30 August 2008

Originally posted by :Shubhankar Limaye
"	Yes. bonus shares can be issued out of such revaluation reserves	"

Sorry Sir, i beg to disagree with you. ARR ( Asset Revaluation Reserve cannot bd uilised for issue of bonus shares or distribution by way of Dividend to Sharerholders or setting off of Debit Balance of P & L Account. SAt best it may be used for providing depreciation on the enhanced value of Asset consequent upon upward revaluaion. kindly refer to Guyidancd note on Treat ment of reserve created on Revaluation of Fixed Assets issued bvy ICAI GN(A) 3 ( 1982)- Page No. 10 of Compendium of Guidance Notes as on July 1 2006).

Shubhankar Limaye (B.Com.) (174 Points)
Replied 30 August 2008

Dear Shri Kumar,

I feel that when the Companies Act has not prohibited the capitalisation of revaluation reserve (there is no specific provision), and the nature of guidance notes is recomendatory, the company can issue bonus shares out of revaluation reserves if its articles of association permit.

Kindly refer 1. https://www.thehindubusinessline.com/2005/08/18/stories/2005081800221100.htm
2. https://www.indlii.org/JudgementDetail.aspx?JudgementID=1752

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Ganesh Manna (Accounts exe) (28 Points)
Replied 04 December 2009

In the F/ y 2007-2008 land have been revalued 180000/- per Katha , in this matter a/c-ing treatment was land Dr to Revaluation Reserve Cr Rs. 180000/- Per Katha , now during the yaer Land sales Rs. 100000/- per Katha . What should be made in Accounts Books as per AS-10?

Ganesh Manna (Accounts exe) (28 Points)
Replied 04 December 2009

In the F/ y 2007-2008 land have been revalued 180000/- per Katha , in this matter a/c-ing treatment was land Dr to Revaluation Reserve Cr Rs. 180000/- Per Katha , now during the yaer Land sales Rs. 100000/- per Katha . What should be made in Accounts Books as per AS-10?