When revaluing assets, your two options for dealing with current accumulated depreciation are either to eliminate it entirely or restate it proportionately. Let me explain both options with examples detailing the steps.
Elimination
With this option the accumulated depreciation is eliminated against the gross carrying amount of the asset with the net amount restated to equal the revalued amount. To give you an example:
| Before revaluation: |
|
| – cost |
3,000 |
| – accumulated depreciation |
1,000 |
| Net book amount |
2,000 |
|
The asset is revalued to: |
3,500 |
|
After revaluation: |
|
| – cost |
3,000 |
| – gain on revaluation |
500 (a) |
| Asset at revalued amount |
3,500 |
|
Accumulated depreciation |
1,000 |
| Gain on revaluation |
-1,000 (b) |
|
Accumulated depreciation after revaluation
|
0
|
| The gain on revaluation is 1,500 (500 (a) + 1,000(b)) * |
|
* Essentially if you think about it, the net book amount was 2,000 and the revalued amount 3,500. The difference between those two is 1,500 so there’s your gain again found by a shorter method.
Proportional restatement
Accumulated depreciation is restated proportionately with the change in the gross carrying amount of the asset such that the net book value of the asset after revaluation equals its revalued amount. As an example (base details taken from above):
| After revaluation: |
|
| – cost |
3,000 |
| – gain on revaluation |
2,250* (a) |
|
Asset at the revalued amount: |
5,250* |
|
|
|
| – accumulated depreciation |
1,000 |
| – loss (that is, additional depreciation) on revaluation |
750 (b) |
|
Accumulated depreciation after revaluation
|
1,750
|
| The gain on revaluation is 1,500 (2,250 (a) – 750 (b)) |
|
* You essentially have to find indexes (cost value to the net book amount and accumulated depreciation amount to the net book amount) and multiplied by the new revalued amount (In this case it’s 3,000 / 2,000 * 3,500 = 5,250 being the new cost value and as for the gain, you take off the initial cost that was 3,000. This results in gain of 2,250).
** The same as the cost, 1,000 / 2,000 * 3,500 = 1,750.
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