revaluation reserve
This query is : Resolved
03 January 2011
is revaluation reserve a part of capital reserve or revenue reserve
03 January 2011
Revaluation reserves (or, more precisely, revaluation surplus reserves) arise when the value of an asset becomes greater than the value at which it was previously carried on the balance sheet, increasing shareholders funds . Not every increase in value is added to the revaluation reserve, and the exact treatment depends on the history of the asset: in particular whether it has been impaired.
Fair value accounting requires that revaluations are carried out whenever there is a material difference between the current market value of an asset and the value at which it carried on the balance sheet. This principle is should be applied strictly to assets such as land and investments in which a market exists, or for which a fair value can be calculated. For practical reasons, and to keep the accrual principle effective, IFRS permit plant and equipment to be simply carried at the depreciated value.
The gain from a revaluation is called a surplus. It is not usually a profit because it is not taken through the profit and loss account and recognised as a profit. This is not prevent profits being distorted by one-off gains, obscuring trends in the business itself. A reduction in the value of an asset on revaluation (a deficit) is usually a loss.
The surplus on a revaluation is not always added to the revaluation reserve. Where it reverses a previous impairment, the impairment is reversed, but any surplus in excess of the amount of the impairment is added to the revaluation reserve. Where an impairment is reversed, this is a profit, as it is necessary to reverse the loss from the impairment.
Similarly, a deficit on revaluation is first used to reverse any previous surplus (reducing the revaluation reserve), with the excess over that treated as any other impairment and taken through the P & L as a loss.
Revaluation reserves are not distributable, but may be used for scrip issues and may change their nature in re-organisations of capital.
Fair value accounting requires that revaluations are carried out whenever there is a material difference between the current market value of an asset and the value at which it carried on the balance sheet. This principle is should be applied strictly to assets such as land and investments in which a market exists, or for which a fair value can be calculated. For practical reasons, and to keep the accrual principle effective, IFRS permit plant and equipment to be simply carried at the depreciated value.
The gain from a revaluation is called a surplus. It is not usually a profit because it is not taken through the profit and loss account and recognised as a profit. This is not prevent profits being distorted by one-off gains, obscuring trends in the business itself. A reduction in the value of an asset on revaluation (a deficit) is usually a loss.
The surplus on a revaluation is not always added to the revaluation reserve. Where it reverses a previous impairment, the impairment is reversed, but any surplus in excess of the amount of the impairment is added to the revaluation reserve. Where an impairment is reversed, this is a profit, as it is necessary to reverse the loss from the impairment.
Similarly, a deficit on revaluation is first used to reverse any previous surplus (reducing the revaluation reserve), with the excess over that treated as any other impairment and taken through the P & L as a loss.
Revaluation reserves are not distributable, but may be used for scrip issues and may change their nature in re-organisations of capital.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Refund Annexure-B
- Liable to deduct tds and 44ADA
- Sale of Equity shares for Purchase of Residential Property
- Nomination of Bank for refund in itr 2
- Section 56(2) of the Income tax Act 1961 , Gift to relative .
- ECO SUPPLY REPORTIONG IN GSTR-1
- Is Interest applicable for payment made through credit ledger vide DRC03 for FY 2020-21 & 2021-22
- CCFS 2026 Schemed
- Subscription paid to foreign customer
- Two seprate Invoice needed
- E Commerce GSTR1 & 3B how to file
- GST Cancellation without jurisdiction
- Legal Opinion on Registrar's Refusal to Investigate a Society for Non-Renewal and Non-Compliance
- GST Refund_RFD-01
- Form10BD was uploaded successfully without any Error but after 24 hours, Form10BE are not available
- Annexure B utility for GST Refund
- Tax amount diff in Gstr1 and 3B in tax compare reports
- Tds on GST in connection with sale to public company
- Restoration of certificate of practice
- Regarding change in correspondence address in SSP portal
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
CAclubindia
