Acca financial Accounting (FA) Study Text ac ca (FA)

Disposal of a revalued asset 

IAS 16 says that 

'the gain or loss arising from the derecognition of an item 

of property, plant and equipment shall be determined as the difference 

between the net disposal proceeds, if any, and the carrying amount of the 

item'

 (IAS 16, para 71). 

Additionally, IAS 16 says that 

'the revaluation surplus included in equity in 

respect of an item of property, plant and equipment may be transferred 

directly to retained earnings when the asset is derecognised'

 (IAS 16, 

para 41). This is achieved by taking the balance on the revaluation surplus 

account and transferring it to retained earnings which contains only realised 

gains and losses. If the entity no longer owns the asset because it has been 

disposed of, it is inappropriate to maintain a revaluation surplus account for that 

asset. Any balance on revaluation surplus at the disposal date has now been 

realised and should be transferred to retained earnings and disclosed in the 

statement of changes in equity ('SOCIE' – this is dealt with later in the text). The 

double entry within equity is as follows: 

Dr Revaluation surplus 

Cr Retained earnings 

Retained earnings are the sum total of all the profits and losses earned to date 

and is included within equity on the statement of financial position. 

 

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