Revaluation reserve uses - urgent

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CMA Naveen Kumar (Querist)
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02 October 2020 We are having revaluation reserve in our balance sheet. We want to writte off it from balance sheet. what are the probable use or how we can remove it from our balance sheet.

CA Kushwanth AVSR

CA Kushwanth AVSR (Expert)
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03 October 2020 There are different rules applicable for that in different scenarios.
What is the type of business.?
Individual or firm or company or any other.?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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21 July 2025 Certainly. Here's a clear and urgent answer to your query regarding how to remove or use the Revaluation Reserve from the balance sheet:

🧾 Revaluation Reserve – How to Write It Off / Remove from Balance Sheet
🔍 What is Revaluation Reserve?
A Revaluation Reserve arises when fixed assets are revalued upward.

It is an unrealized gain and part of Reserves & Surplus under equity.

It is a non-cash reserve — so cannot be used freely like general reserves or retained earnings.

✅ Permissible Uses of Revaluation Reserve (As per ICAI Guidance Note & AS 10 / Ind AS 16)
Use Permitted? Method
1. Transfer to General Reserve (on disposal of asset) ✅ Yes Upon sale/disposal of revalued asset
2. Transfer to General Reserve (gradually via depreciation) ✅ Yes Yearly, equal to excess depreciation on revalued amount
3. Adjust against impairment/loss of asset ✅ Yes If asset is impaired, reserve can be reduced accordingly
4. Transfer to Retained Earnings (Ind AS) ✅ Yes On disposal or as accounting policy
5. Direct write-off to P&L ❌ No Not allowed – misleading and against standards

🔧 How to Remove It from the Balance Sheet
A. Upon Sale or Disposal of Asset
Transfer entire revaluation reserve related to the asset to General Reserve or Retained Earnings.

Journal Entry:

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Revaluation Reserve A/c Dr. ₹XX
To General Reserve A/c ₹XX
B. Gradual Transfer via Depreciation (If asset not sold)
Each year, transfer excess depreciation (on revalued portion) to General Reserve.

Example:
If depreciation on historical cost = ₹10,000
Depreciation on revalued cost = ₹15,000
Excess = ₹5,000

Entry:

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Revaluation Reserve A/c Dr. ₹5,000
To General Reserve A/c ₹5,000
This continues annually until the revaluation reserve is fully transferred.

C. If Asset Impaired or Written Off
You can adjust revaluation reserve to absorb the loss in asset value before hitting P&L.

Entry:

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Revaluation Reserve A/c Dr. ₹XX
To Asset A/c ₹XX
⚠️ What You Cannot Do:
Not Allowed Reason
Transfer revaluation reserve directly to P&L Unrealized gain – violates accounting standards
Use it to pay dividend or adjust general losses Not free reserve – Companies Act does not allow this

📌 Conclusion:
If you want to remove Revaluation Reserve from your balance sheet:

Transfer to General Reserve (on asset disposal)

Transfer gradually each year (excess depreciation)

Adjust against impairment, if applicable

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