Please give Journal Entries as explained in this para of GN
Charging of depreciation in case of revaluation of assets
P28.
- A question may arise, as to whether the additional depreciation provision required in consequence of revaluation of fixed assets can be adjusted against "Revaluation Reserve" which is created by a company by transferring the difference between the revalued figure and the book value of the fixed assets.
- Depreciation is required to be provided with reference to the total value of the fixed assets as appearing in the accounts after revaluation.
- However, for certain statutory purposes e.g., dividends, managerial remuneration etc., only depreciation relatable to the historical cost of the fixed assets is to be provided out of the current profits of the company.
- In the circumstance, the additional depreciation relatable to revaluation may be adjusted against "Revaluation Reserve" by transfer to Profit and Loss Account.
- In other words, as per the requirements of Part II of Schedule VI to the Companies Act, the company will have to provide the depreciation on the total book value of the fixed assets (including the increased amount as a result of revaluation) in the Profit and Loss Account of the relevant period, and thereafter the company can transfer an amount equivalent to the additional depreciation from the Revaluation Reserve.
- Such transfer from Revaluation Reserve should be shown in the Profit and Loss Account separately and an appropriate note by way of disclosure would be desirable.
- Such a disclosure would appear to be in consonance with the requirement of Part I of Schedule VI to the Companies Act, prescribing disclosure of write-up in the value of fixed asset for the first five years after revaluation.
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