Property, plant and equipment schedules template includes a line named as \u201cRevaluation surplus\u201d. 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?<\/p>\n
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\u2019t make a mistake here, even assets that are revalued, are also depreciated. But that\u2019s not the point we\u2019re trying to make here.
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\nRevaluations, when the applicable model is applied, should be carried out regularly and for all the assets inside the same class, so that the carrying amount of an asset does not differ materially from its fair value at the balance sheet date. Mathematically the surplus comes about like this. If the carrying value is let\u2019s say 4,000 and the fair value is estimated to be 6,000, we have a surplus, which is added to net book amount on the Property, plant and equipment schedules template. Due to double accounting this second half, the credit side of the entry is made to other comprehensive income and accumulated in equity under the name \u201cRevaluation surplus\u201d (note that in case of revaluation decrease reversal the surplus is recognized as income through profit or loss and not in the comprehensive income). Any decrease as a result of a revaluation is recognized as expense to the extent that it exceeds any amounts previously credited to the revaluation surplus relating to the same asset.<\/p>\n
Now you may ask what happens with this surplus when the particular asset is disposed. Well, it\u2019s transferred to retained earnings mostly, but may also be left under the same heading \u201cRevaluation surplus\u201d in equity. This transfer is made however directly to retained earnings and current year profit or loss is left untouched.<\/p>\n
I hope that you now get the idea behind this \u201cRevaluation surplus\u201d disclosed in the Property, plant and equipment schedules template. It\u2019s not a \u201cmust have\u201d line, but may be very handy and even fair to the financial statements and to the company.<\/p>\n