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Calculation for depreciation on reveluation of assets

Atindra Deshmukh (Chartered Accountant) (37 Points)

02 July 2009

The company has revalued its assets last year. I would like to know how to calculate the additional depriciation on the difference of book value and revalued figure. also should the company charge higher rate of depriciation on such difference. also what notes to accounts to give for depriciation and revaluation reserve. it would also be healpfull if you can tell me which listed companies have revalued their assets for reference.

atindra

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2 Replies

RITESH KOTHARI (B.COM, FCA, DISA(ICAI)) (778 Points)
Replied 02 July 2009

As per AS-6: Where the historical cost of a depreciable asset has undergone a change due to increase or decrease in long term liability on account of exchange fluctuations, price adjustments, changes in duties or similar factors, the depreciation on the revised unamortised depreciable amount should be provided prospectively over the residual useful life of the asset.

notes to accounts should disclose the purpose of revaluation and the effect on Profit/Loss in Quantitative terms

And there is no need to charge any extra depreciation on the revaluation difference.

Ankit Himatsingka (Exec) (52 Points)
Replied 25 February 2010

In case of revaluation of assets - all that is required to be done is to assess the remaining useful life of the asset & charge depreciation accordingly.

Step 1: While revaluing the asset the entry would be -

Fixed Assets Dr.

To Revaluation Acc (Part of owner's fund)

Step 2: Now, say the asset was a building originally being depreciated @ 10% p.a. This means the asset's estimated useful life was 10 years. Also, assume the original cost of the building was Rs 100,000. In the past 7 years, depreciation charged is Rs. 70,000. So, the net block of asset becomes Rs. 30,000.

Now, if the assets value is increased by say Rs. 20,000 then the new value of asset in books is Rs 50,000

It is now necessary to ascertain the remaining useful life of the asset. Since, the increase in the value of asset by revaluation must be because the depreciation charged earlier was at higher rate than required.

So, the value of Rs 50,000 should be depreciated over the period of remaining life.