1

1 PPE

ADDITIONAL NOTES &

EXERCISE
 Revaluation Model –
Accounting for Revaluation
Surplus or Deficit
 The fair value (FV) could be higher or
lower than the carrying amount (CA)
of the asset.
 Material differences between CA and
FV:
 If CA < FV  Surplus
 If CA > FV  Deficit
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 Surplus on Revaluation

 FV exceeds the CA.

 Credit into equity, under the heading of revaluation
reserve.
 Journal entry:
Dr Asset ABC
Cr OCI/Revaluation Reserve – Asset ABC
 Revaluation surplus:
o Is disclosed in the ‘other comprehensive income’
o For each asset - should be separately identified and
accounted for.
 Example : Example 4.25 (a) pg. 165 FAR 1
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FINANCIAL ACCOUNTING AND REPORTING 2 (SECOND EDITION) All Rights Reserved
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 Cont.
Surplus on Revaluation
 Offsetting Revaluation Reserve :
 The balance of the revaluation reserve is transferred to retained earnings when the asset
is retired or disposed off.
Dr Revaluation Reserve – Asset A
Cr Retained Earnings

 Throughout the use of the asset - an amount equal to the addition depreciation (the
difference between the depreciation based on the revalued amount and the asset’s
original cost) is transferred to the retained earnings.
Dr Revaluation Reserve – Asset B
Cr Retained Earnings

 The surplus is due to a deficit in the previous revaluation – take to Statement of Profit
or Loss and Other Comprehensive Income (SPLOCI).
Dr Asset C
Cr SPL (Statement of P&L)
OCI/Revaluation Reserve - Asset C
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 Deficit on Revaluation

 CA exceeds the FV.

 Considered as losses, therefore charged in the current year’s
Statement of Profit or Loss and Other Comprehensive Income (SPLOCI).
Dr SPL (Statement of P&L)
Cr Asset D
 The decrease can be debited to the revaluation reserve (disclose in OCI)
to the extent of any credit balance existing in the revaluation surplus in
respect of that asset.
Dr OCI/Revaluation Reserve – Asset E
SPL (Statement of P&L)
Cr Asset E
 Example : Example 4.25 (b) pg. 165 FAR 1

FINANCIAL ACCOUNTING AND REPORTING 2 (SECOND EDITION) All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2019 1–6
FINANCIAL ACCOUNTING AND REPORTING 2 (SECOND EDITION) All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 1–7
FINANCIAL ACCOUNTING AND REPORTING 2 (SECOND EDITION) All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 1–8
FINANCIAL ACCOUNTING AND REPORTING 2 (SECOND EDITION) All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 1–9
FINANCIAL ACCOUNTING AND REPORTING 2 (SECOND EDITION) All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 1–10
 Exercise: Depreciation

Dairy Sdn Bhd sold the following two machines in 2018:

Machine A Machine B
Cost RM118,000 RM100,000
Purchase date 1 July 2014 1 January 2015
Useful life 8 years 5 years
Residual value RM6,000 RM5,000
Depreciation method Straight-line Double-declining-balance
Date sold 1 July 2018 1 August 2018
Sales price RM55,000 RM20,000

Required:

Journalize all entries required to update depreciation and record the sales of the
two assets in 2018. The company has recorded depreciation on the machine
through 31 December 2017.

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© Oxford Fajar Sdn. Bhd. (008974-T), 2019 1–11