Upward revaluation of land-treatment of Revaluation Reserve

This query is : Resolved 

03 November 2010

Our company has decided to revalue all its assets. In our case the major upward revaluation will be on land. As per AS10 the entry for upward revaluation in the initial year will be:
Fixed asset A/c (including land)………………………..Dr
To Revaluation Reserve A/c.
During the subsequent years, the additional depreciation arisen due to revaluation of Fixed assets is to be adjusted against Revaluation Reserve.
Revaluation Reserve A/c………………………………..Dr
To Profit and Loss A/c.
My doubt is on subsequent years accounting treatment.
Whether in the subsequent year the adjustment of additional depreciation against Revaluation Reserve should be made on Asset wise (ie, Additional depreciation against upward revaluation of plant against Revaluation Reserve of plant) or as a whole?
If it is adjusted against Revaluation Reserve, individual Asset head wise, since land is non depreciable asset, will the Revaluation Reserve created due to upward revaluation of land remains in the books of accounts always?
Hope, the friends and experts in CA club understand my doubt, kindly help me in solving this situation.

CA Shailesh Kumar Bhagat (Expert)
03 November 2010

You cannot adjust deprection of plant and machinary against revaluation reserve arise against land.

CS.Sreejan (Querist)
04 November 2010

Thank u CA Shailesh sir, can u please tell me where this restriction for set-off against the revaluation reserve is specified? I mean, is it as per Accounting standard or Companies Act, 1956?

Tilak Agrawal (Expert)
09 November 2010

Dear Sreejan

In my Opinion in the subsequent year the adjustment of additional depreciation against Revaluation Reserve should be made on Asset wise basis rather than as a whole However neither AS nor companies ACT specifically mention this type of situation but logically the above treatment is to be made.

Revaluation reserve is to be debited when land is sold.

If you debit revaluation reserve against depreciation of other asset before land is sold it is like indirectly recognising unrealised profits to profit and loss which is wrong.

I hope this clears your doubt

CS.Sreejan (Querist)
09 November 2010

Now it is clear for me sir, thank u very much

shakuntala chhangani (Expert)
11 November 2010

Hi Sreejan, your question is covered under AS 10 which clearly states that revaluation reserve of one asset cannot be adjusted for dep or rev loss of any other asset. Further the entry u gave is not right. the entry should be :
Dep A/c Dr. XX (additional)
To Fixed Asset A/c
Revaluation reserve A/c Dr.
To Dep A/c
Further under guidance note, it is suggested to charge additional dep to p/l A/c as it is the period cost. In case of land (which is non-depreciable),such question does not arise. Hence revaluation reserve will be kept intect as it is unrealised profit until there is some loss on revaluation of same asset or if the land is sold out in which case the profit will get realised and rev. reserve will be transferred to P/l A/c.
Thus, it is clear that u will have to maintain rev. res. assetwise.
Regards, CA Shakuntala Chhangani

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