When first recognizing an asset on the balance sheet as a part of property, plant and equipment or part of intangibles, you should come across with the term ‘residual value’. I say that you ‘should’ because most accounting standards (at least the ones based on IFRS) are referring to the need to determine one.

The general rule is that the difference between cost and residual value is charged as depreciation over the useful life on an asset. When cost value is something that is easier to grasp as a definition, the term ‘residual value’ is too many times misinterpreted.

Read the rest of this entry

Property, plant and equipment schedules template includes a line labeled as “Revaluation surplus”. It may however not always be surplus and may be a negative in the form of a charge. In the accounting and IFRS it’s called an impairment charge. To start off with impairment one needs to understand when impairment is initially charged and why is it?

Read the rest of this entry

Property, plant and equipment schedules template includes a line named as “Revaluation surplus”. This is not a normal default line in the schedule and is added on rare cases only. How and why is there such a line in the schedule?

First off the line only comes up when revaluation model is used. When normally assets are carried on the balance sheet at cost less accumulated depreciation model, under the revaluation model the assets are carried at a revalued amount, being its fair value at the date of the revaluation less subsequent depreciation and impairment, provided that the fair value can be measured reliably. Don’t make a mistake here, even assets that are revalued, are also depreciated. But that’s not the point we’re trying to make here.

Read the rest of this entry